PM360 NOVEMBER 2010

OPTIMIZING BRAND PERFORMANCE

Forecasting the Impact of PPACA

BY PATRICIA ENSOR, RPH, MBA, SENIOR VICE PRESIDENT, KANTAR HEALTH

SIGNED INTO LAW BY PRESIDENT OBAMA IN MARCH 2010, THE PATIENT PROTECTION and Affordable Care Act (PPACA) can be viewed as both good news and bad news for pharmaceutical companies. Companies will benefit from the influx of an estimated 32 million patients who will get health insurance coverage over time.

However, the revenues derived from this influx of newly insured patients will be offset in part by new taxes and fees that will be imposed years before these patients enter the system. This is one of several provisions passed to offset the estimated $3 trillion cost of the expanded and modified healthcare system. Pharmaceutical companies with more than $5 million in U.S. sales will pay fees based on a share of their prescriptions in the total U.S. prescription drug market, with the exclusion of orphan drugs.

In addition to these fees, increases in rebates and discounts are required and some onerous administrative requirements have the potential to further affect the bottom line. Uncertainty about how coverage and reimbursement may be affected by comparative effectiveness research and the impact of the Independent Payment Advisory Board loom large as companies try to anticipate the future impact of this reform on their revenues and profits. So what are the implications of PPACA that you need to consider when forecasting product revenue streams?

The insurance reforms and mandates are enacted over a series of years, so it’s important to understand both the timing and the implications. It’s also important to understand the profile of the new patients covered by insurance and the demographics of the patients targeted by the drug therapy to be forecasted.

AGE DEMOGRAPHICS OF TARGET DISEASE
While there will be an influx of new patients over time, whether a pharmaceutical company should project an impact on a product’s revenue depends on the target population of the diseases and the therapeutic areas being forecasted. Many of the newly insured will come primarily from the 19 to 34 age cohort, which represents the largest portion of the uninsured population today.

For example, oncology products are used predominantly by elderly patients, but a major influx of elderly patients is not expected due to PPACA. However, antipsychotic products are used in younger patients, many of whom may become newly Medicaid eligible, potentially increasing product usage.

Pharma companies need to examine a product’s use by age cohort and be able to address the question “Can we expect the newly insured patients to be relevant to the product under analysis?”

PAYER MIX DRIVES REBATE OBLIGATIONS
Medicaid rebate exposure will increase, with brand rebates rising to 23.1% of AMP. In addition, units eligible for rebate will be expanded to now include Medicare managed care lives. Further, both the discounts required and the number of entities eligible for these discounts are expanded under the Public Health Service’s 340B Drug Pricing Program. This means that newly eligible patients may increase revenues, but increased rebates and discounts will negatively impact margins. Pharmaceutical companies should consider the percentage of product use covered by Medicaid, site of use (340B eligible), and the product’s pricing history to fully understand the future impact due to PPACA.

A key goal of the reform was to eliminate the so-called donut hole in Medicare Part D. Under the PPACA, pharmaceutical companies must provide a 50% rebate on branded drugs for patients while they are in the donut hole. Many believe that this may encourage patients to stay on branded drugs instead of shifting to generics when available. Although costs will be mitigated for some patients, out-of-pocket affordability will still limit access to high-cost drugs for many patients.

As forecasters analyze payer mix, it will be important to monitor trends of commercially insured patients who may shift to Medicare as retiree drug plans are discontinued. Patients’ out-of-pocket costs for pharmaceuticals may be less attractive than in their previous commercial plan, thus increasing affordability issues for some patients.

BIOSIMILARS ENTER THE MARKET
The FDA was given authority to approve biosimilars under PPACA, but the regulatory timeline and pathway are uncertain currently. Until those pathways are outlined, it will be difficult to project the likelihood and timing of a biosimilar competitor entering the market. Pharma needs to model a variety of scenarios including biosimilars to account for variable timing of patent expirations, biosimilar entry, pricing differentials, and erosion of share. In the E.U., where biosimilars have been approved, price differentials of approximately 20% to 30% below the brand price have been seen.

WHAT DOES ALL OF THIS MEAN?
Some pharma companies have gone public about the implications of PPACA in terms of impact on both revenue and earnings. For the most part, there will be a negative impact in the short term due in part to increased rebates without the expected influx of patients until 2014. However, most companies that have commented have said they are holding their EPS guidance even, presumably due to adjusted expenses.

To determine overall PPACA impact, product-by- product roll-ups must be analyzed. Assumptions for product forecasts need to be brand-specific, taking into consideration patient demographics, payer mix, site of service, patient out-of-pocket costs, and the impact of biosimilars, if applicable. As with any forecast, there’s no one right answer, but scenario modeling can provide valuable insight especially with the uncertainties that still exist under the new legislation.

Patricia A. Ensor, SVP at Kantar Health, has more than 25 years of experience in healthcare sectors including the pharmaceutical industry, acute-care hospitals, retail pharmacy, and professional advocacy/trade associations. Ensor is experienced in commercial development and product marketing, with an emphasis on commercial assessment, reimbursement, and market development strategies.