Now that the US Supreme Court has ruled on The Patient Protection and Affordable Care Act (hereinafter the ACA), what are some of the potential effects it will have on health care and biotech/pharmaceutical industries? Synopses of areas relevant to the legislation follow.
Biosimilars and Patent Protection on Biologics
"The Patient Protection and Affordable Care Act [Affordable Care Act (ACA)], signed into law by President Obama on March 23, 2010, amends the Public Health Service Act (PHS Act) to create an abbreviated licensure pathway for biological products that are demonstrated to be "biosimilar" to or "interchangeable" with an FDA-licensed biological product. This pathway is provided in the part of the law known as the Biologics Price Competition and Innovation Act (BPCI Act here). Under the BPCI Act, a biological product may be demonstrated to be "biosimilar" if data show that, among other things, the product is "highly similar" to an already-approved biological product." Supporters of this legislation believe that the BPCI should help to expand the biosimilar market in the US, making more of these types of medicines available faster and at a lower cost.
Some key points:
Biosimilar User Fee Act (BsUFA)
Functionally related to the BPCI Act, according to the FDA: "The Federal Food, Drug, and Cosmetic Act (the FD and C Act), as amended by the Biosimilar User Fee Act of 2012 (BsUFA), authorizes FDA to assess and collect fees for biosimilar biological products from October 2012 through September 2017. FDA dedicates these fees to expediting the review process for biosimilar biological products. BsUFA facilitates the development of safe and effective biosimilar products for the American public."
The future will tell us how long approval will take; for now the stated BsUFA goals are as follows:
|Submission Cohort||Performance Goals|
|Original biosimilar biological product application submissions||70% in 10 months of the receipt date||70% in 10 months of the receipt date||80% in 10 months of the receipt date||85% in 10 months of the receipt date||90% in 10 months of the receipt date|
|Resubmitted original biosimilar biological product applications||70% in 6 months of the receipt date||70% in 6 months of the receipt date||80% in 6 months of the receipt date||85% in 6 months of the receipt date||90% in 6 months of the receipt date|
Starting January of next year, biomedical device manufacturers will have to pay tax on medical devices that is expected to collect $29 billion over the next 10 years to support ACA. The $20 billion tax was included in the Affordable Care Act that was signed into law in 2010. The amount is based on a 2.3% excise tax that will be levied on the total revenues of a company, regardless of whether a company generates a profit, starting in 2013. Mark Leahey, President and CEO of the Medical Device Manufacturers Association (MDMA), issued the following statement (June 28, 2012) following the SCOTUS decision:
"Today's decision adds new urgency to repealing the medical device tax so that patients and providers can continue to expect innovative devices and technologies. While MDMA and our members still have seen no evidence or reports showing any 'windfall' for medical device companies as a result of the ACA, it is clear that this misguided policy has already led to job losses and cuts to research and development.
"If the true goal of health care reform is to reduce costs and to improve patient care, then Congress and the President need to repeal the device tax so America's medical technology innovators can continue to develop cutting edge products. Doing so will be a win-win for patients and jobs."
Since most patients needing and receiving devices are already covered by Medicare, the increase in number of newly insured patients (essentially those not on Medicare) due to the ACA will not benefit the device industry to the extent that pharma potentially will benefit. Amy Segel, of Medcity News, in her excellent review of the impact of the ACA on medical technology companies explains: "And no, moving operations to Tijuana will not exempt you unless your customers are also there; the tax applies to the US sale regardless of where the company is located. However, the time-tested med tech strategy of first gaining approval and selling in Europe will soon have the added benefit of avoiding the US medical device tax, since ex-US sales are not subject to the tax (makes sense, since Uncle Sam is not paying for that hip implant in Paris)".
MassDevice, "...the online journal of the medical devices industry, providing day-to-day coverage of the devices that save lives, the people behind them, and the burgeoning trends and developments within the industry", performed a retrospective analysis of the impact this tax would have had if it had been implemented on 2009 sales revenue of various device manufacturers. As can be seen in the following table, the impact is meaningfully significant for companies with both large and small revenue streams:
|Company||Fiscal 2009 Revenues||Excise Tax||Fiscal 2009 Profit (Loss)||Profit (Loss) After Excise Tax|
|Baxter International Inc.||$12,560.0||$288.9||$2,210.0||$1,921.1|
|Johnson & Johnson*||$11,010.0||$253.2||$12,266.0||$12,012.8|
|Boston Scientific Corp.||$8,190.0||$188.4||($1,030.0)||($1,218.4)|
|St. Jude Medical Inc.||$4,680.0||$107.6||$777.2||$669.6|
|Agilent Technologies Inc.||$4,481.0||$103.1||($31.0)||($134.1)|
|Beckman Coulter Inc.||$3,260.6||$75.0||$147.0||$72.0|
|C.R. Bard Inc.||$2,500.0||$57.5||$461.0||$403.5|
|Kinetic Concepts Inc.||$1,993.0||$45.8||$228.7||$182.9|
|Edwards Lifesciences Corp.||$1,320.0||$30.4||$229.1||$198.7|
|Hanger Orthopedic Group Inc.||$760.1||$17.5||$36.1||$18.6|
|Orthofix International NV||$545.0||$12.5||$24.0||$11.5|
|American Medical Systems Holdings Inc.||$519.3||$11.9||$84.8||$72.9|
|Wright Medical Group Inc.||$487.5||$11.2||$12.1||$0.9|
|Zoll Medical Corp.||$385.0||$8.9||$9.6||$0.7|
|Symmetry Medical Inc.||$366.0||$8.4||$21.8||$13.4|
|ICU Medical Inc.||$231.5||$5.3||$26.6||$21.3|
|AGA Medical Holdings||$198.7||$4.6||($15.4)||($20.0)|
|NxStage Medical Inc.||$148.7||$3.4||($43.5)||($46.9)v|
|Solta Medical Inc.||$98.8||$2.3||($11.2)||($13.5)|
|ATS Medical Inc.||$75.0||$1.7||($6.0)||($7.7)|
|Vascular Solutions Inc.||$68.4||$1.6||$5.4||$3.8|
|Palomar Medical Technologies Inc.||$60.6||$1.4||($10.5)||($11.9)|
|Syneron Medical Ltd.||$54.7||$1.3||($23.6)v||($24.9)|
|LeMaitre Vascular Inc.||$51.0||$1.2||$1.6||$0.4|
|Rochester Medical Corp.||$34.8||$0.8||$0.1||($0.7)|
|BioSphere Medical Inc.||$31.0||$0.7||($3.2)||($3.9)|
|HeartWare International Inc.||$24.2||$0.6||($20.9)||($21.5)|
* U.S. medical device segment sales only
Impact on Biomedical Research: Cures Acceleration Network Act of 2009
The Cures Acceleration Network Act of 2009 established the "Cures Acceleration Network (CAN) to advance the development of high need cures and reduce significant barriers between research discovery and clinical trials. To achieve these objectives, CAN "provides the National Center for Advancing Translational Sciences (NCATS) with new flexibilities in its funding authorities."
"Under CAN, NCATS may make large grant awards of up to $15 million per fiscal year, partnership awards that require 1:3 matching funds, and flexible research awards using the special funding mechanism called other transactions (OT), which allows projects to be actively and aggressively managed by using mechanisms similar to those used by the Defense Advanced Research Projects Agency at the U.S. Department of Defense. CAN investments will be guided by the CAN Review Board."
Nature News Blog reports in July 2012: "The House subcommittee would fund the NIH's new National Center for Advancing Translational Sciences (NCATS) at a flat budget of $575 million, short of the $639 million requested by the Obama administration and offered by the Senate. Within NCATS, the House would offer the Cures Acceleration Network (an unconventional effort to speed "high needs" drugs to patients) just $10 million, instead of the $40 million proposed by Senate funders or the $50 million requested by Obama."
"In 2010, 275 of the country's major teaching hospitals, which make up only 6% of all hospitals, conducted nearly 40% of the country's free care for uninsured patients, worth US$8.4 billion, according to the Association of American Medical Colleges (AAMC) in Washington DC."
The ACA will produce $153 billion in Medicare and Medicaid payment cuts to teaching hospitals over ten years ending in 2021. Because the teaching hospitals at academic medical centers provide a disproportionate amount of charity care, lawmakers reasoned that with an insurance mandate in place, these hospitals will begin to be paid for that care, allowing the government to save the $153 billion.
In this statement, the AAMC celebrated the high court's decision, with president Darrell Kirch pronouncing himself "extremely pleased" with the result. However, "There is no question that these cuts put the ability of institutions to continue to invest in medical research at risk," says Ann Bonham, chief scientific officer of the AAMC. Time will tell what the net impact will be on funding of research at the country's major teaching hospitals.
Medicaid Average Manufacturer Price (AMP)
In January of 2012, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule revising Medicaid requirements for covered outpatient drugs. The purpose of the rule is to implement changes to Medicaid drug pricing and reimbursement requirements of the ACA. The proposed rule addresses a number of issues relevant to pharmaceutical manufacturers and pharmacies.
The ACA increased the minimum rebate percentage for most single source and innovator multiple source drugs from 15.1 percent of the AMP to 23.1 percent of AMP. However, until now, CMS had provided little guidance to manufacturers on the agency's interpretation of the various revisions to AMP made by the ACA. The following key elements of the proposed rule merit follow-up by those entities impacted:
Akin Gump Strauss Hauer and Feld provides an excellent summary of the issues related to the Average Manufacturer Price (AMP) concept proposed in the ACA.
Minimum Rebates Drug Firms Must Offer Medicaid
The ACA increases the minimum rebates that drug firms must offer Medicaid programs from 15.1% to 23.1% for most brand name medications, and these rebates would also increase for generics. Before the ACA, rebates were divided evenly between the federal government and the states; the ACA provides that the federal government will now get 100 percent of the increased rebate funding.
According to Kaiser Health News, "Under the old policy, states sent Washington a proportion equal to the share of Medicaid funding the federal government paid. The law says that the federal government now will get 100 percent of the rebate funding "attributable" to the increase from 15.1 to 23.1 percent. (Any rebates above 23.1 percent will still be shared)"
Some observations by KHN:
Patient-Centered Outcomes Research Institute (PCORI)
The Patient-Centered Outcomes Research Institute (PCORI), a result of the ACA, is authorized by Congress "to conduct research to provide information about the best available evidence to help patients and their health care providers make more informed decisions. PCORI's research is intended to give patients a better understanding of the prevention, treatment and care options available, and the science that supports those options."
Opponents of the law (i.e., Association of American Physicians and Surgeons) have equated the idea of evidence-based medical care with the image of "death panels" of health officials controlling access to treatment. PCORI recently announced funding and approval of 50 Pilot Projects, totaling $30 million over two years, to investigators in 24 states and the District of Columbia."
PCORI's proposed research priorities and budget distribution are:
|Priority||% Funding Allocation|
|Assessment of prevention, diagnosis, and treatment options||Approximately 40%|
|Improving healthcare systems||Approximately 20%|
|Communication and dissemination research||Approximately 10%|
|Addressing disparities||Approximately 10%|
|Accelerating PCOR and methodological research||Approximately 20%|
Physician Payment Sunshine Act
The Physician Payments Sunshine provisions in health care reform legislation require drug and medical device manufacturers to publicly report gifts and payments made to physicians and teaching hospitals. The Act also requires those manufacturers and GPOs to disclose any financial or ownership interests that physicians or their immediate family members have in with those entities.
In its recent announcement, CMS indicated that in order for it to appropriately address the input received during the comment period and to allow affected organizations sufficient time to prepare for their reporting obligations, data collection for applicable manufacturers and GPOs will not be required before January 1, 2013. The Association of Clinical Research Organizations (ACRO) published a statement in February 2012 with strong concerns regarding a chilling effect this reporting requirement would have on the conduct of medical research.
Though there is no certainty that the ACA will survive and be fully implemented (a lot may ride on the outcome of the presidential election), it is prudent to assume that it will be fully operational. Only a few of the potential impacts of this legislation have been outlined here.
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The following links provide additional background and insights on the topics discussed in this article. We hope you find them useful!