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What Obama means for Pharma this time

By Gareth Macdonald , 07-Nov-2012
Last updated on 12-Nov-2012 at 15:05 GMT

What does Obama mean for Pharma this time?
What does Obama mean for Pharma this time?

Barack Obama’s re-election will mean millions more US citizens have health insurance, which has significant implications for the pharmaceutical industry.

President Obama’s victory last night means the 2010 patient protection affordable care act (PPACA) – which is designed to ensure uninsured US citizens have access to health insurance – will be enacted and eventually mean that another 35 million people have coverage.

Unsuccessful challenger Mitt Romney had said – if elected – he would "issue an executive order that paves the way for the federal government to issue Obamacare waivers to all fifty states” arguing that PPACA is too complex and costly.

For drugmakers the retention of Obamacare is both positive and negative. More inured people will increase prescription utilization rates and therefore mean more drug sales, but pricing is likely to be negatively impacted by legislation designed to reduce public spending.

The extent of this impact will be determined by a number of factors. The most pressing of these is President’ Obama’s ability to deal with Sequestration, which is an automatic across the board budget cut that will be carried out on January 2 unless repealed.

If the law cannot be repealed in time – a distinct possibility given that it comes into effect in 55 days – the budget for the national social insurance programme Medicare, which includes prescription drug coverage, will be reduced by 2 per cent. 

Whether such a reduction in budget would make President Obama more likely to try and “cut spending on prescription drugs by using Medicare’s purchasing power to drive greater efficiency” as he suggested in April last year is unclear, but it must be a possibility.

Negotiation

How the US drug industry – including its association the Pharmaceutical Research and Manufacturers of America (PhRMA) – would react to this type of negotiation is more predictable.

In 2009 the industry group successfully lobbied against President Obama’s efforts to give Medicare greater negotiation powers through provisions he hoped to add to the 2003 law that established the prescription drug programme. The provisions were never added to the 2003 law or Obamacare.

That drug industry victory, combined with a reduction in the contribution they were required to make to Obamacare - from $100bn to $80bn, - meant that PhRMA supported the bill and it passed.

Any effort to resurrect stronger price negotiation would not be welcomed and would likely mean that PhRMA joins those trying to repeal Obamacare. Such opposition would set the stage for a battle with the President who has already said he will defend the law.

In a policy statement issued in July  this year the Obama Administration said: “The Administration strongly opposes House passage of H.R. 6079  [which would repeal Obamacare] because it would cost millions of hard-working middle class families the security of affordable health coverage and care they deserve.

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