Patient Protection and Affordable Care Act (PPACA) and its Impact on BioPharma Companies

HealthPPACA is one of the most important healthcare legislation approved recently. The public and private stakeholders listed above have all actively participated in shaping up this legislation. Some of the highlights of this legislation and the direct impacts to the BioPharma companies are highlighted below.

In March 2010, Congress passed and the President signed into law the Patient Protection and Affordable Care Act, which puts in place comprehensive health insurance reforms that will hold payers more accountable, lower health care costs, guarantee more health care choices, and enhance the quality of health care for all Americans. Under this Act, more than 32 million uninsured Americans are expected to have increased access to affordable, quality health coverage options, such as those through the new Health Insurance Exchanges, which will provide essential benefits and impose limits on cost sharing. With better access to health coverage, fewer Americans will need to delay or avoid seeking the care they need because they cannot afford it. This is expected to lower the burden of uncompensated care on physicians, hospitals, and the rest of the system.

The industry has actively participated in shaping this Act. There are several provisions that directly impact the industry and the key ones such as fees imposed on companies, Medicare/Medicaid rebates, patent protection of biologics, pathway for biosimilars, comparative effectiveness requirements, and transparency requirements are highlighted below. Note that there are several other provisions dealing with research tax credits, coverage of clinical trial costs, limitations on prescription drug promotion, fraud and abuse along with others that will impact how companies develop and commercialize drugs. 

Annual Fees from BioPharma Companies

The BioPharma companies manufacturing or importing branded prescription drugs shall pay an annual fee to the Secretary of the Treasury. The fee is based on a company’s percentage of branded prescription drug sales during the preceding calendar year. The Secretary of the Treasury calculates the amount of each covered entity’s fee for any calendar year. The applicable annual amount from BioPharma manufacturing sector includes: $2.5B for 2011, $2.8B 2012-13, $3B for 2014-16, $4B for 2017, $4.1B for 2018, and $2.8B in 2019 and thereafter. This provision is expected to have a negative impact on the profit margins of companies in the short run and if the demand increases as envisioned due to more Americans getting access to care, the net financial impact will be neutral or positive depending on how much incremental value gets generated due to this increased access.

Medicare/Medicaid Rebates

BioPharma companies have to provide 50% discount on covered brand-name drugs to Medicare patients reaching the coverage gap in Medicare Part D coverage (donut hole) effective January 1, 2011. The Medicaid rebate that companies have to pay for brand name drugs increases to 23.1% (except the rebate for clotting factors and drugs approved exclusively for pediatric use). This provision is expected to have a negative impact on the profit margins for prescription products.

The law grants biologics manufacturers with innovative products 12 years of exclusive use before biosimilars can be developed. The law also introduces a regulatory pathway for biosimilars and the companies seeking approval for biosimilars must demonstrate the following.  The biological product is biosimilar to a reference product based upon data derived from (a) analytical studies that demonstrate that the biological product is highly similar to the reference product, notwithstanding minor differences in clinically inactive components; (b) animal studies (including the assessment of toxicity); and (c) a clinical study or studies (including the assessment of immunogenicity and pharmacokinetics or pharmacodynamics) that are sufficient to demonstrate safety, purity, and potency in one or more appropriate conditions of use for which the reference product is licensed and intended to be used and for which licensure is sought for the biological product. The biological product and reference product utilize the same mechanism of action for the condition or conditions of use prescribed, recommended, or suggested in the proposed labeling, but only to the extent known for the reference product. The conditions of use prescribed, recommended, or suggested in the labeling proposed for the biological product have been previously approved for the reference product. The route of administration, the dosage form, and the strength of the biological product are the same as those of the reference product. The facility in which the biological product is manufactured, processed, packaged, or held meets standards designed to assure that the biological product continues to be safe, pure, and potent.  Till now, the companies have enjoyed the longer life on their innovations; however, this law will profoundly change the biologic marketplace over the years. Due to the complexity involved in developing these biosimilars based on the above requirements, companies have to acquire new competencies and invest significant resources to target this evolving market. 

Comparative Effectiveness

The ‘comparative clinical effectiveness research’ evaluates and compares health outcomes and the clinical effectiveness, risks, and benefits of two or more medical treatments, services, such as health care interventions, protocols for treatment, care management, and delivery, procedures, medical devices, diagnostic tools, products (including drugs and biologics), integrative health practices, and any other strategies or items being used in the treatment, management, and diagnosis of, or prevention of illness or injury in, individuals. The law authorizes to establish the ‘Patient-Centered Outcomes Research Institute,’ which is responsible for assisting patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing the quality and relevance of evidence concerning the manner in which diseases, disorders, and other health conditions can effectively and appropriately be prevented, diagnosed, treated, monitored, and managed through research and evidence synthesis that considers variations in patient subpopulations, and the dissemination of research findings with respect to the relative health outcomes, clinical effectiveness, and appropriateness of the medical treatments, services. This provision is expected to impact all BioPharma companies as the evidence and value generation requirements put additional burden on resources and their ability to generate the comparative effectiveness data. PBMs and payers have begun planning for these comparative effectiveness studies in some therapeutic areas in an effort to identify the best treatment protocols and the drugs that might fit into these protocols to improve quality of care while reducing costs.

Transparency Requirements of Payments to Healthcare Providers

On March 31, 2013, and on the 90th day of each calendar year beginning thereafter, the BioPharma companies that provide a payment or other transfer of value to healthcare providers shall submit the following information with respect to the preceding calendar year: the name of the covered recipient, a description of the form of the payment or other transfer of value, and if the payment or other transfer of value is related to marketing, education, or research specific to a covered drug, device, biological, or medical supply, the name of that covered drug, device, biological, or medical supply and any other categories of information regarding the payment or other transfer of value the Secretary determines appropriate.