The Morning Report
Get the news and information you need to take on the day.
Tuesday, June 9, 2009 | In 1993, when a newly elected Democratic president pushed a massive healthcare reform proposal, the biotechnology industry lined up steadfastly against it. Industry leaders had many issues with the Clinton Administration proposal, with worries that price controls on biotech-produced drugs would accompany government-run healthcare at the top of their list.
Now, as President Obama shifts his healthcare reform effort into high gear, the industry still has many of the same concerns it did 16 years ago, But this time, rather than lining up to beat the new president, biotech leaders are maneuvering to join him on as favorable terms as possible. The general sense is that healthcare reform is inevitable, and you can either get on board or get left behind.
“This time around we have a seat at the table in both the White House and on the Hill,” said Joe Panetta, CEO of Biocom, the local biotech industry association. “And you have the president saying to both House and Senate: develop a healthcare plan.”
Panetta has made sure that his seat stays warm. He has been to Washington D.C. six times this year, and was on the Hill last week lobbying on the issue.
It’s a vital issue for local business. The industry Panetta represents includes 700 companies in San Diego that collectively employ nearly 44,000 workers, and have a $9 billion annual impact on the economy, according to the San Diego Association of Governments estimates.
The healthcare reform debate, especially as it pertains to the biotech industry, will primarily focus on two related issues. The first has to do with percentage of people who would purchase their insurance through a government program. The second centers around how much control the government will have in how much healthcare costs.
Seventy percent of Americans could be insured through the government, said Paul Keckley, the executive director of Deloitte Center for Health Solutions, an independent health research organization. And if there is such a government program, it will likely have a role in determining which drugs and other treatment alternatives are covered, and how much the insurance program will pay for them.
“The question is will an independent arm of the government have responsibility for determining what diagnostics and therapeutics are considered appropriate?” Keckley said.
The answer could come before Christmas. Right now the expectation is that a bill will come out of Congress by Labor Day, Keckley said, and Obama wants a bill he can sign before Thanksgiving.
More than anything else, the industry wants to keep price controls on medical devices and drug therapies from being a big part of any legislation. The big worry is that if the government plays too heavy of a role in determining drug prices, no one will want to invest in biotech companies.
Obama, meanwhile, is stressing that cost containment must accompany reform. In a letter last week to Sens. Edward Kennedy and Max Baucus, who lead the committees that will produce the healthcare reform legislation, the president wrote that “without a serious, sustained effort to reduce the growth rate of health care costs, affordable health care coverage will remain out of reach.”
Panetta and other industry lobbyists say that drugs and medical devices represent a relatively small slice of the healthcare spending pie. And they paint a bleak picture of a world where biotech companies won’t take the risks that lead to innovation if government plays too heavy of a role in determining what prices are paid for their products.
The biotech business model calls for companies to spend hundreds of millions — even billions — of dollars developing and marketing a device or drug, and then the company recouping that investment by charging high prices for its product in the years before the patent expires.
“We have to make sure that as we look to reducing costs we don’t set arbitrary price caps,” said Jeff Joseph, a spokesman for Bio, the industry’s national organization. “We can’t remove incentive to invest in companies that are finding the cures.”
Others argue that overpayment for healthcare, including biotech drugs, is a significant problem, and drug prices do not have to be as high as they are for the industry to be profitable.
“The fiscal health of federal government depends on controlling healthcare cost growth,” said Richard Kronick, a professor at the University of California, San Diego School of Medicine who was a senior health policy advisor in the Clinton administration.
Kronick points out that when you add spending on Medicare, Medicaid, Veterans Affairs and healthcare for federal employees, the annual federal outlay for healthcare is about $800 billion. And spending on healthcare in the United States has grown by 2.4 percent more than the annual increase in the nation’s gross domestic product, which Kronick describes as “unsustainable” if the administration is at all serious about tackling the ballooning federal budget deficit.
And while Kronick doubts that cutting healthcare spending from 2.4 percent more than GDP to say 1 percent more than GDP “won’t result in the demise of the biotech industry,” he said it could lead to somewhat slower development of the more expensive biotech drugs.
“Perhaps we will end up with a process that tries to more closely match the health value that is created by new drugs with the amounts of money we spend for them,” Kronick said.
Industry lobbyists counter with the argument that spending on pharmaceuticals and medical devices account for only 10 to 13 percent of healthcare costs. And, they say, drug costs are not increasing at nearly the rate of hospital stays and other costs.
“The immediate desire to control costs shouldn’t end up the be all and end all,” said Ted Buckley, Bio’s economist. “Putting someone in a home for Alzheimer’s is very expensive. So finding a cure for Alzheimer’s would be very valuable.”
Please contact David Washburn directly at firstname.lastname@example.org with your thoughts, ideas, personal stories or tips. Or set the tone of the debate with a letter to the editor.