By Rita E. Numerof, Numerof & Associates
After seemingly endless rounds of rhetoric and debate, the 2012 presidential campaign has finally reached its conclusion. We know what each of the candidates had said they would do, but now that President Obama has been re-elected, the focus has moved from politics to policy. So what can pharmaceutical manufacturers expect to happen next?
The Patient Protection and Affordable Care Act (PPACA) emerged from the frustration of increasing healthcare costs, inadequate quality, and coverage issues … clearly, inadequate value for each dollar spent. But the idea of demonstrating value is far from revolutionary for the pharmaceutical industry. The recent "big" news (and threat) has been comparative effectiveness research (CER) and increasing global pressure to demonstrate economic and clinical value. Whether or not healthcare policy exists in its current form, manufacturers will need to demonstrate value for their products. As CER makes its way to the delivery sector, and new requirements for predictive care paths emerge alongside downward reimbursement pressure, having branded products "baked in" to these care paths will be essential to future success.
In the face of declining reimbursement, delivery organizations must rethink their business models. CMS (and the public) is unlikely to allow Medicare insolvency, so downward reimbursement pressure is almost certain to continue. At the same time, increased focus on transparency in cost and quality, outcomes and accountability are changing the marketplace.
Intensifying interest in personalized medicine and treatment outside the hospital setting presents both opportunity and threat. If only 20% of a given population will respond to a drug, this dramatically reduces the potential market of the agent if payers require more specificity in understanding who will benefit. In the treatment of cancer, for example, insurers will ultimately need to pay for diagnostics to identify which patients will respond to which chemo agents and which ones won't.
These market dynamics suggest that the future of medical innovation in the U.S. is a critical issue and at a critical crossroads. Still one of the "crown jewels" in the U.S. economy, the pharmaceutical, medical device and diagnostic sectors represent a significant component of GDP and a major source of good jobs … to say nothing about the value their products contribute to overall productivity as a function of improved health.
Globally, these segments are being pushed by stricter regulation and requirements for more robust evidence in order to bring products to market … and once in-market, to remain viable. Post-market safety surveillance is just beginning to take hold in the device sector, and drugs continue to be challenged to demonstrate clinical safety … even while they're being compared to generics and other interventions, including watchful waiting.
Downward pressure on innovation will accelerate short-term as we see more consolidation in the marketplace and rapid belt-tightening to fund enormous bureaucratic costs. PPACA imposes new costs on the industry that cannot be passed along in this cost-constrained environment, essentially reducing available margin. The risk-to-return ratio was already being strained by the growing cost of regulation. PPACA will dampen the appetite for innovation and its associated risk.
As such, the industry has seen and will continue to see--even without PPACA--a requirement for greater evidence, and thus, fewer me-too products. The old way of doing things has typically meant pushing products to the market without demonstrating real economic and clinical product value. But as the market increasingly demands evidence (e.g., consumer exposure, global reference pricing and regulatory harmonization, etc.), pressures for demonstrated value will require a shift in investment from commercial channels to R&D.
Manufacturers must continue to innovate, as significant unmet medical needs remain. Patent protection (outside the domain of PPACA) will be key to this, as will more visible engagement with the patient community in the identification of real unmet needs and ongoing monitoring in post-market safety and real world evidence (RWE).
The reality is that the next four years--and the decades to follow--will be impacted more directly by the actions of regulatory agencies and payers than the specific fate of PPACA, despite what both candidates this election cycle may have argued. And looking into the upcoming presidential term of an Obama administration, the real issue for pharma companies is CMS' pending insolvency, and the increasing concerns it raises about value in healthcare.
The fate of PPACA is just the tip of the iceberg for manufacturers. The real key to keeping this "Titanic" afloat will be focused and continued diligence in collecting data to support strong value arguments. Manufacturers can ensure product success within a new era of market dynamics, with a higher bar for evidence and more complex stakeholder agendas than ever before. At the end of the day, solid products and services that make a meaningful difference in meeting unmet clinical need will always find a market.
Rita E. Numerof is president at Numerof & Associates Inc. (NAI). NAI is a strategic management consulting firm focused on organizations in dynamic, rapidly changing industries.