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Democrats propose price negotiation plan with drugmakers
Democrats from the US House of Representatives are looking to introduce legislation that would require the country's Health and Human Services Secretary to negotiate lower prices for the Medicare insurance programme with pharmaceutical companies.
HR 4, the 'Medicare Prescription Drug Price Negotiation Act,' states that "the secretary shall negotiate with pharmaceutical manufacturers the prices...that may be charged" to organisations offering coverage through Medicare, which deals with some 43 million elderly and disabled Americans. In the past, drugmakers declined to negotiate with the government, claiming that such price control measures would force them to cut spending on R&D for innovative drugs. Under the 2003 Medicare law, passed by a Republican Congress, insurers and their agents currently negotiate prices with drug manufacturers and the law prohibits the secretary from interfering in the matter.
It appears that this situation may now change. The Democratic Party gained control of the House after a huge victory at the polls in November and has traditionally been regarded as less than favourable to drugmakers than the Republican Party. However, the bill also states that private insurers would establish their own list of covered drugs and the secretary could not "establish or require a particular formulary," which has led some analysts to dispute the effectiveness of the new plan.
The response from the country's industry association has been guarded. The Pharmaceutical Research and Manufacturers of America's senior vice president Ken Johnson said that "we've just received a copy of the legislation and we're trying to determine the practical implications of it." He added that "while we are very supportive of the Medicare prescription drug benefit - and are committed to making a good programme even better - we remain strongly opposed to any price control schemes which would limit the choice of medicines available to seniors and disabled Americans."
Much more pleased with the proposed changes was William Novelli, chief executive of AARP, which represents 38 million elderly Americans, who said he backed "the common sense approach to give the HHS secretary the opportunity to develop a workable negotiation process for prescription drugs, consistent with the structure of the Medicare drug benefit, with the ultimate goal to lower drug costs."
A vote by the full House is expected later this week and if the bill passes, it must go to the Senate, where Democrats hold a slim majority, before it goes to President Bush, who has the power to veto such a measure.
Medicare is top issue facing US drug industry in 2006
Consultancy firm PricewaterhouseCoopers has issued a report on the top 10 business issues for the pharmaceutical and other healthcare industries in 2006, headlined by the impact the Medicare Prescription Drug Benefit legislation will have in the USA.
This bill, which went into effect on January 1, will inflate Medicare's share of US prescription drug spending from just 2% in 2005 to a hefty 28% this year, according to PwC's Health research Institute, creating a powerful single purchaser of drugs that will be able to negotiate strongly on price.
This could ultimately affect the profitability of health plans, pharmacy benefit managers and drug manufacturers, according to the report. Programmes that fail to attract enough subscribers are likely to see premium hikes, and the US Congress could rein in spending if Medicare costs continue to increase.
Meanwhile, hospitals in the USA will have to tackle the problem of care and coverage of the uninsured, as more and more Americans drop health insurance coverage. A few payers have begun to collaborate on pilot programmes to develop low-cost health insurance coverage, but hospitals will need to develop a way of handling uninsured patients that does not cripple the financially or lay them open to regulatory problems or loss of reputation.
"The simple days of $10 co-pays will become a distant memory for hundreds of thousands of Americans with high-deductible health plans and Health Savings Accounts," according to PwC. More than three-quarters of large employers believe they can cut healthcare costs by asking their employees to pay a greater share of those costs.
For the pharmaceutical industry, it suggests, companies may need to examine their product portfolios as consumers become increasingly price-sensitive and comparison-shop for generic drugs and other alternatives.
Patient safety
Unsurprisingly in the wake of the fallout following the withdrawal of Merck & Co's painkiller Vioxx (rofecoxib) over the course of 2005, this year will see an increased focus on patient safety, says PwC.
Legislation passed last year has removed some of the fear of liability that has kept medical errors from being reported, and laid the foundations for a national database of non-identifiable patient safety data that should improve monitoring. In 2006, the report expects greater emphasis on the use of information technology to improve safety by reducing medical errors and improve tracking and reporting of safety and quality standards.
Annual investments in healthcare IT are expected to nearly double to approximately 5% of revenue from an average of 2%-3% percent now.
Diminishing drug pipeline
The report also raises the often-debated topic of declining R&D productivity in the pharmaceutical industry. With the cost of drug development in excess of $800 million, pharmaceutical manufacturers are under pressure from stakeholders to produce even as their margins erode.
Meanwhile, patent expiries could further decrease revenue by up to 60%, says the report, while growing competition from generic drugs, production of cheap counterfeit drugs from markets such as China and India and the emergence of China as a low-cost manufacturing base are exacerbating the problem.
In 2006, says PwC, the pharmaceutical industry will be focused on boosting R&D productivity and cutting costs and many drug companies will boost their efforts to form strategic alliances and joint ventures with biotech firms as a source for new products.
Other issues highlighted by the report include:
* Wellness and obesity: Consumers who pay for more of the direct cost of their healthcare have an increased incentive to manage their health and lifestyle. PwC expects a significant increase in voluntary or even mandatory health promotion and wellness initiatives, and there will be a growing market for drugs, treatments and services oriented toward wellness and prevention.
* Pay for performance: To win financial bonuses for quality, hospitals and physicians will need to work together to change behavior and measure their clinical performance against agreed standards, while pharmaceutical and life sciences companies will have to adopt greater vigilance in product safety from research through market adoption, with the help of IT.
* Report card fever: there will be increasing demand for more transparent information about pricing, and health organizations will need to develop transparent reporting practices for heir prices, error rates and safety standards.
* Technology backbone: Significant progress will be made in 2006 by government, industry coalitions and banks to build a technology infrastructure to improve claims processing, create electronic medical records, reduce medical errors and track performance.
* Labour shortages: the report found that healthcare executives rank staff shortages and training as the top problem facing healthcare delivery. Solutions could include increased use of automation for administrative functions, outsourcing, subsidised training, aggressive recruitment and retention, as well as redefining staff functions.
US drug prices rise over inflation, AARP report finds
Drug prices for almost 200 brand name products frequently used by elderly citizens in the USA swelled an average of 0.9% in the second quarter of the year, overshooting inflation by 0.4%, according to the latest report by US lobby group AARP.
The increase slowed sharply from the 3.3% hike recorded in the first quarter, although the group says that this follows a seasonal pattern. "Average price increases for the second quarter of any given year tend to be lower than first quarter increases, and this trend continued in 2005," AARP explained in a statement.
But for the 12 months ended June 30, the average rate of increase in manufacturers' prices hit 6.1%, just over double the rate of inflation for the same period. "When the Medicare drug benefit was passed, AARP issued a challenge to the drug industry to keep increases at least to the rate of inflation until people had better coverage. By and large, that's not happening. Prices are going up more than twice the rate of inflation," said David Gross, lead author of the report, as quoted by Forbes.
The AARP prepares its Rx Watchdog Report every quarter in order to track seasonal changes in drug pricing for its 35 million elderly members. According to its findings, a typical older citizen taking three prescription drugs a day is likely to be paying an extra $97.14 for the year to June 30, versus $144.15 for the 12 months to March 2005.
Leading the pack in terms of price increase over six months was Proctor & Gamble's osteoporosis agent Actonel (risedronate), which rose 7.5%. This was closely followed by its peer, Eli Lilly's Evista (raloxifene), up 6.2%. Other substantial price hikes were seen from AstraZeneca's beta-blocker Toprol XL (metroprolol succinate), growing 6%, and Bristol-Myers Squibb's cholesterol-buster Pravachol (pravastatin), rising 5.9%.
On a more positive note, the report found that the average annual cost of drug therapy to treat chronic conditions seems to be decelerating; for the year to June 30, the average annual rise was $32.38, versus $51.56 for 2004 and $48.05 for the year to March.
IMS predicts slowdown for world pharma market
IMS has predicted a slowdown in the growth of the overall global pharmaceutical market to 6%-7% in 2006, compared with 7%-8% for the current year, while the top five European markets will manage a growth rate of just 4%-5%.
But the generics sector will forge ahead, increasing to around 18%-19% of the total drug spend, from 12%-13% in 2005, according to the company. Total sales for the drug sector will reach $640-$650 billion dollars.
The key issues affecting the European marketplace include an expansion of the reference price system and national efforts to encourage generic prescribing, but this decelerating effect will be offset - at least in part - by new product introductions, disease awareness programmes and increased spending on public health, says IMS.
The USA will continue to drive pharmaceutical growth, expanding by 8%-9% in 2006 compared to 6%-7% this year, helped by the launch of the US Medicare drug benefit that will expand senior's access to medicines and a 'rebound' effect after the scandals surrounding the safety of the COX-2 inhibitors.
But the big growth story lies in China, where the market is expected to vault forward 17%-18% to a value of $13-$14 billion in 2006, as a result of the underlying economic growth in the country and continued roll-out of a national reimbursement drug list. But price cuts and cost-containment will also be a feature of the Chinese market in 2006, said IMS.
For Japan the picture is less rosy, with growth pegged back at no more than 1%, down from 5%-6% in 2005, as the effects of the mandated price cuts and the National health Insurance reimbursement changes continue to bite.
For the first time, cancer drugs will overtake the cholesterol-lowering class as the top-selling therapy category, with turnover of $35 billion next year, notes IMS. And above-average growth is also expected for the angiotensin-II receptor antagonists, platelet aggregation inhibitors and osteoporosis treatments.
Pharmaceutical manufacturers must take decisive action in a number of areas to respond to the changes in market conditions and shifts in their product portfolios, according to IMS Health. These include: reassessing sales and marketing spend levels and practices accelerating safety surveillance; investing in health outcomes and pharmacoeconomic studies; and pursuing growth in emerging markets such as China, Latin America and Eastern Europe.
"Collectively, the Industry must continue its efforts to enhance its public image and demonstrate its commitment to the advancement of health care, and also consider carefully how to adapt its business model to sustain growth worldwide, said Murray Aitken, senior vice president, corporate strategy, at the company.
"Market conditions are changing, governments' span of control is growing and future success will only be achieved by those manufacturers with innovative products, demonstrable cost-effectiveness and productive, evidence-based sales and marketing approaches," he added.
- Meanwhile, IMS and Dutch market research group VNU have been forced to re-appraise their 6.3 billion-euro merger plans in the face of strong shareholder opposition, according to a report in the Financial Times. The newspaper suggests that the companies are looking at re-drawing the terms of the merger, or even abandoning it altogether.
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