Drug company budgets could take a big hit under new Obama budget

Rising Cost of HealthcareThe drug industry could lose billions of dollars under President Barack Obama’s budget proposal for the coming fiscal year.The increased costs of Medicare  are balanced by measures that would reduce prescription drug spending for beneficiaries and taxpayers. Obama seeks to close the Medicare prescription drug benefit coverage gap known as the “doughnut hole” by 2015, five years sooner than under current law. The budget also would cut Medicare payments for prescription drugs and speed generic medicines to the market.  While Obama’s budget is far from becoming a reality pharma companies should start scenario planning now in case the worst does become the law of the land.

According to the Huffington Post the White House targets drug companies for $169 billion in spending reductions over 10 years. The proposals include a number of provisions Obama set aside in 2009 and 2010 in exchange for the pharmaceutical industry’s support of his health care reform plan, including $123 billion in savings from applying lower Medicaid drug prices to medicines sold to poor beneficiaries on Medicare, which pays higher rates for pharmaceuticals.

Obama also would bar brand-name drugmakers and generic manufacturers from striking “pay to delay” deals that postpone the availability of cheaper medicines and shorten the length of time makers of brand-name “biologic” drugs, which are based on living organisms, can market products without generic competition.

Federal regulators are pressing the Supreme Court to stop big pharmaceutical corporations from paying generic drug competitors to delay releasing their cheaper versions of brand-name drugs. They argue these deals deny American consumers, usually for years, steep price declines that can top 90 percent.
The Obama administration, backed by consumer groups and the American Medical Association, says these so-called “pay for delay” deals profit the drug companies but harm consumers by adding 3.5 billion annually to their drug bills.


But the pharmaceutical companies counter that they need to preserve longer the billions of dollars in revenue from their patented products in order to recover the billions they spend developing new drugs. And both the large companies and the generic makers say the marketing of generics often is hastened by these deals. O have suggested numerous times that prescription drugs should gain patent protection when approved by the FDA so that the clock starts ticking when drug companies can sell the drug.

There are some who believe that the drug industry should give up more but I would remind them that there are a lot of new drugs in development for chronic diseases and cancer and that it could take billions of dollars to develop a successful drug.

Economists and Federal regulators are concerned that companies are agreeing to sell their drugs cheaply elsewhere, while piling research and development costs onto their prices in the United States. “Obviously, we subsidize the world,” said Richard Zeckhauser, an economist at Harvard University.

At the American Society of Clinical Oncology meeting in Chicago last year a report reveals that drugmakers in the USA are testing 981 medicines and vaccines to fight cancer.

An analysis published by the Pharmaceutical Research and Manufacturers of America notes that these therapies, which are either in clinical trials or under review by the US Food and Drug Administration, include 121 for lung cancer, 117 for lymphoma and 111 for breast cancer. The report notes the “steady improvements in cancer survivorship rates in the USA and quotes figures from the American Cancer Society which show that the death rate fell 22% for men and 14% for women between 1990 and 2007; this translates to 898,000 fewer deaths.

In order to keep the costs of Medicare down we need to address hospital costs as well as patient education to keep older patients out of the hospital

In order to keep the costs of Medicare down we need to address hospital costs as well as patient education to keep older patients out of the hospital

The National Institutes of Health estimates the overall costs for cancer in 2007 of $226.8 billion. Also, according to recent research from the University of Chicago, reducing cancer death rates by 10% would be worth roughly $4.4 trillion “in economic value to current and future generations”.

If the drug industry is forced to reduce the costs of some drugs for Medicare those dollars would most likely come from R&D as well as continued layoffs.  However it’s hard to understand how some executives, like the top two for Amgen, were able to pocket tens of millions of dollars in compensation while they were laying off people and just payed a record $750 million fine.  But let’s be honest here, it’s about the stock price not the companies reputation with patients and customers.

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  1. Pingback: The drug industry should bow to the inevitable | World of DTC Marketing.com

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