Post-reform pharma should follow the money

What's pharma's best bet in the post-healthcare reform world? Avoiding the government. No, that's not like running from the police. It's more like luxury marketing: Targeting your business toward the customers who can pay the most for it.

The reform legislation hikes up the minimum rebates in Medicaid to 23.1 percent, with rebates applying for the first time to Medicaid managed-care organizations. It puts pharma on the hook for a discounts in the Medicare Part D program, with a mandated 50 percent discount in the so-called "doughnut hole" in Part D coverage. It levies new fees. And it expands discounts for certain hospitals, such as children's and community hospitals.

It does bring millions of new customers to the pharma table, of course. But PricewaterhouseCoopers figures that expansion won't really outweigh the added costs, and that drug sales are likely to be about 4 percent lower than they would be otherwise from 2010 to 2019.

So, what's the solution? It's one that pharma has already been employing--diversification. Get into products that sell outside of Medicare and Medicaid, such as eye-care products (think Novartis buying Alcon) and dental-health products (think consumer healthcare deals, such Sanofi-Aventis buying toothpaste and mouthwash maker Chattem) and nutritional products. And then there are pet products, which Sanofi and Merck are pushing via their new animal-health joint venture.

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ALSO: Discretionary spending could add another $115 billion-plus to the 10-year cost of health-care overhaul, the Congressional Budget Office said yesterday. Report