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Budget crunch, political battles shape 2012 policy agenda


Election-year politics will color a range of legislative and policy developments affecting drug development, production, and reimbursement in the coming year, as efforts to reduce government spending on healthcare prompts all parties to search for opportunities to do more with less. Looming over the political landscape is the upcoming Supreme Court decision on the constitutionality of the Obama health reform legislation.

Key Points

Election-year politics will color a range of legislative and policy developments affecting drug development, production, and reimbursement in the coming year, as efforts to reduce government spending on healthcare prompts all parties to search for opportunities to do more with less. Looming over the political landscape is the upcoming Supreme Court decision on the constitutionality of the Obama health reform legislation.

The healthcare community backed the Affordable Care Act (ACA) 2 years ago as a way to expand healthcare coverage and prescription drug benefits. In return, insurers and pharmaceutical companies agreed to pay hefty new fees, and accept tighter market regulation, including subsidies on the cost of drugs sold to seniors caught in the "doughnut hole" of the Medicare prescription drug program. Plans and providers now face the possibility that legislation and legal decisions could eliminate the market reforms and insurance exchanges designed to expand enrollment in health plans, while retaining provisions that cut revenues and raise costs.

Budget issues may be just as critical, as limited resources throughout the public and private sectors will undercut efforts to advance biomedical research and expand public health programs. As the campaign for the White House and control of Congress heats up, health plans, providers, and pharmacy benefit managers (PBMs) will have to keep a sharp eye on how new policy proposals may affect healthcare coverage, pharmaceutical pricing, and drug development and regulation.

Amidst the political uncertainty, HHS will continue to implement the policies and programs established by the ACA, assuming that much of the law will remain in place. States are expanding health IT systems and processes for determining insurance eligibility and coverage; insurers are revising rate calculations and benefits packages; and all parties are looking to reduce costs by cutting payments to providers, increasing patient cost-sharing, and reducing benefits and services. Increased reliance on managed care plans and coordinated care programs; initiatives to reduce fraud and abuse; and efforts to curb pharmacy expenditures will emerge as ways to save money without compromising care.


The drive for healthcare savings will continue to shine the spotlight on pharmaceutical pricing, reimbursement, and access. Payers will look for more drug discounts and rebates, threatening to relegate pricey products to unfavorable positions on health plan formularies. The Centers for Medicare and Medicaid Services (CMS), PBMs, and other payers and insurers will question the value of high-cost therapies with limited benefit. Pharmaceutical companies are responding with risk-sharing programs that skew prices to patient response to a new therapy. These developments will raise difficult questions about cost versus safety, as seen in the debate over treatment of age-related macular degeneration with off-label use of the cancer drug bevacizumab (Avastin), instead of with the more costly formulation ranibizumab (Lucentis).

Pressure to cut costs will drive efforts to establish a pathway for bringing biosimilars to market. FDA guidance on the scope of preclinical and clinical testing needed to document product comparability, if not interchangeability, will spur action in this field. FDA has devised user fees that will support more assistance to small firms, and has to tackle thorny issues including policies for product names, coding requirements for reimbursement, and rules governing patent challenges.

Biosimilars are a big issue because payers anticipate hefty savings from these look-alike therapies, as has been the case with small molecules over the past 25 years. Generic drugs now account for about 80% of prescriptions in the United States, and the proportion will rise as more blockbusters like Pfizer's Lipitor (atorvastatin) go off patent. However, efforts by Pfizer to retain a good portion of the Lipitor market, by cutting its price and negotiating long-term deals with payers and PBMs, have roiled the drug industry and pharmacy programs.


Rising international sourcing of pharmaceutical ingredients has highlighted the importance of managing supply chains thoroughly in order to ensure product quality, and prevent serious shortages in vital drugs. The White House unveiled a drug shortages initiative in October 2011, which supports proposals before Congress to broaden manufacturer reporting to FDA about production issues that could lead to supply problems. Policy makers also seek tighter controls on drug imports, better track-and-trace systems, and stiffer penalties for counterfeiting and drug adulteration.

Biopharmaceutical companies are also shifting more clinical research overseas, in an effort to hold down the rising cost of drug development as they struggle to fill a dry new drug pipeline. Expanded international research efforts are tapping into public-private partnerships for developing important therapies for malaria, tuberculosis, and other diseases most prevalent in tropical climates. Health authorities are pressing for more research on new antibiotics, along with treatments for rare conditions, and killer diseases, such as cancer and AIDS. There is growing excitement about new vaccines, which are attracting more industry investment as markets mature around the world.

The rise in foreign clinical research activity continues to focus attention on research ethics and policies to ensure compliance with FDA and standards in the United States. A White House panel has examined past studies, backed by the United States in Guatemala, and proposed changes in current policy. The exercise may help shape a broader overhaul of rules and standards for all clinical studies sponsored by the federal government.

The drive for transparency, moreover, will spur more disclosure of active trials and study results on the http://clinicaltrials.gov/ website. Health reform "sunshine" provisions, which HHS finally issued last month, will require pharma marketers to disclose payments to physicians. This could discourage doctors from participating in clinical research, as well as pharma marketing programs. Despite these concerns, assurance that biomedical research practices fully protect patients and provide valid clinical data is critical to building public confidence in the R&D process.

Public and private backers of biomedical research talk more about "game-changing, transformational leaps" in discovery, as opposed to the incremental gains that traditionally lead to important scientific advances. There is growing enthusiasm for developing "personalized" medicines that provide more effective treatment based on individual genomic and metabolic characteristics. This will require the development of more diagnostics to identify key response factors.

FDA can help the process, according to Commissioner Margaret Hamburg, who has been promoting broader FDA involvement in regulatory science initiatives that can provide new tools and methods to accelerate the R&D process. Several programs seek to validate biomarkers that can identify potential safety problems early on, and improve the efficiency of clinical studies. Other coalitions are looking to streamline R&D by developing research protocols for "adaptive" clinical trials, and encouraging electronic methods for recruiting patients and collecting research data.

"Patient centeredness" will continue to shape a range of regulatory and research initiatives. FDA is encouraging sponsors to incorporate patient needs and opinions into clinical trial protocol design, patient recruitment, drug delivery, and safety evaluation. This approach will be supported by research sponsored by the Patient-Centered Outcomes Research Institute (PCORI), which is slated to have a $500 million annual budget by 2014 to study effective treatments for important conditions. PCORI plans to finalize priorities for its research agenda by March, and its Methodologies Committee aims to report in May on research methods and standards for this field.

FDA officials point to last year's jump in approvals for new molecular entities as evidence that the agency is not keeping important new medications from patients (see cover story, page 26). A number of the approvals involve treatments for rare conditions and serious cancers that carry less risk for patients, and lend themselves to speedy FDA evaluation. However, it remains to be seen if the spike in approvals is a fluke, or a signal of real progress on the innovation front.


Many drug regulatory programs will be shaped by legislation to reauthorize the Prescription Drug User Fee Act (PDUFA), which has to be enacted by Sept. 30 in order for FDA to continue collecting the considerable amount of fee revenues needed to support its regulatory programs. FDA and manufacturers have also agreed on new user fees for generic drug makers and for applications for biosimilars. This must-pass user fee legislation would also renew incentives for developing labeling and dosage forms for pediatric therapies.

PDUFA renewal has strong support on Capitol Hill, but individual legislators could hold up action on the bill to add pet programs to the package. When Republicans and Democrats find it hard to compromise on important policies, it will take considerable political skill for a balanced PDUFA bill to make it through the legislative process.

Ms Wechsler is a Washington-based reporter specializing in federal and state healthcare issues.

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