Wednesday, March 25, 2020

Coronavirus Industry Impact: Manufacturers, Public Policy, and Payers (Part 2)

Today’s post is the second in our three-part investigation of the ultimate impact of the coronavirus on the drug channel. Here is a link to the first part of our survey analysis: Coronavirus Industry Impact: Patients, Pharmacies, and Wholesalers (Part 1). That article includes details about the methodology and respondents.

Today, I review how people in the industry think coronavirus will affect:
  • Federal drug pricing legislation
  • FDA new drug approvals
  • Public support for single-payer health insurance
  • Third-party payment for prescription drugs
I also highlight survey respondents’ comments on whether the current situation will bring overseas pharmaceutical manufacturing back to the United States.

Tomorrow, I’ll examine survey responses that address how the coronavirus may affect the public’s perception of the industry’s participants. In the meantime, remember that every day is no pants day when you work from home.

PHARMACEUTICAL MANUFACTURERS

The chart below summarizes responses to our questions about effects on pharmaceutical manufacturers.

[Click to Enlarge]

1) Drug pricing legislation appears to be off the table.

Industry participants overwhelmingly expect that coronavirus will delay federal drug pricing legislation. The only notable difference among respondents: 93% of those from PBMs and payers agreed that there would be a delay, but 78% of respondents from pharmacies agreed.

As we all hunker down in fear, many people are rethinking their wholly negative commentary about the pharmaceutical industry. The U.S. drug pricing and reimbursement system has many serious problems, as I have highlighted repeatedly on Drug Channels. But so-called “Big Pharma” and its employees are not the cartoon villains that many industry opponents portray.

I highly recommend Coronavirus spending: an expense — or an investment?, an op-ed by Jessica Sagers of RA Capital Management. Dr. Sagers writes:
“Here’s something most people don’t understand: the American biopharmaceutical industry is flourishing. And it is precisely because this industry is flourishing that drug companies can respond to this new global threat with unprecedented speed and precision.”
2) Many expect new drug approvals to slow.

Among all respondents, 56% think it is somewhat or very likely that the FDA will reduce its recent pace of new drug approvals after the coronavirus pandemic subsides. More pharmaceutical manufacturers rated an FDA slowdown as very or somewhat likely than did respondents from other sectors.

In the open-ended comments, respondents highlighted the challenges associated with coordinating remote work, recruiting clinical trial participants, changing R&D priorities, and getting hospital and physician attention if the pandemic persists.

Many respondents also noted that working remotely will negatively impact sales of existing and new drugs. Mason Tenaglia of BioReinsurance Group offered the following insight:
“New products recently launched and those in Phase III can be challenged. Trials will certainly be delayed as patients don't come in for measurement. Switches will not happen because patients don't go to the doctor to ask about [new] products which are improvements. Launches scheduled for Q2 and Q3 will not happen until later in the year. ‘Preserve the Status Quo’ might be the phrase that pays.”
3) Many expect that drug manufacturing will shift back to the United States.

Many people suggested that there will a rethinking of well-established business practices regarding the production of active pharmaceutical ingredients (API) and finished drugs.

Here’s a sample of notable observations:
“The question you should be asking is if the trade believes Congress will mandate a minimum percentage of API and finished dose manufacturing that must take place in the US. Being able to scale to a certain percentage of the nation’s needs during times of crisis.”

“The importance of supply chain within US is vital. We need to prepare for future pandemics and not be reliant on other countries for rare ingredients or pharmaceuticals.”

“Over 90% of medications have API's manufactured in China or India. IMHO, Congress should reinstate the tax incentives for pharmaceutical companies that manufacture in Puerto Rico—good for the United States, patients and the people of Puerto Rico. The coronavirus situation has exposed a glaring weakness in our supply chain—too much dependence on countries whose interest is often contrary to our interests. Yes, prices would rise. Well worth the long term pay off in my opinion!”

“Our supply chain and reliance on foreign suppliers such as China must be addressed and it is likely the government will put incentives in place to domesticate production.”

“I believe there will be substantial discussion about the number of generics and API that are produced in other countries, particularly in China and the need to treat these as a strategic asset. This type of movement would likely raise the price on many high volume, low cost generics by a substantial margin (think of a $5 generic becoming $8). Given the outsized impact of generics in terms of total volume and total spend, this will meaningfully impact client trend if actioned upon and the recent environment where negative generic trend has offset the trend impact of brand inflation, may cease.”
It’s no surprise that the political action has already begun. See White House advisor Peter Navarro: I’m bringing an executive order to Trump that would reduce US foreign dependency on medicines.

PAYER IMPACT

The chart below summarizes responses to our questions about broader industry changes.

[Click to Enlarge]

4) The coronavirus pandemic has not clarified the prospects for single-payer healthcare.

There is considerable uncertainty about whether the coronavirus will alter the public’s support for single-payer national health insurance. The sample split 49%/51% as to whether single-payer is more or less likely. Fewer than 6% of respondents were unsure of their answer. (Note that “unsure” responses were omitted in the charts.)

This question also generated one notable divergence of opinion among sectors. Most (75%) of the respondents from hospitals and healthcare providers believe that coronavirus will make single-payer somewhat or very likely. By contrast, only 42% of manufacturers held this view. (This gap is statistically significant despite the survey’s small sample size from providers.)

5) Most people expect that third-party payment for prescription drugs will not change due to the coronavirus pandemic.

In 2018, federal, state, and local programs accounted for 46% of total net spending on outpatient prescription drugs. Medicare and Medicaid constituted the bulk of these payments. Meanwhile, employer-sponsored private health insurance paid for only 36% of outpatient drugs, down from its peak of 49% in 2001. See Chapter 4 of our new 2020 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

A minority (38%) of survey respondents believe that this overall mix will likely change due to the coronavirus pandemic. However, most (67%) of the respondents from hospitals and healthcare providers expect public payers to increase their share of prescription payment. One such respondent noted:
“I think there will be a small but significant shift toward policies that strengthen the social safety net. This may mean greater support for at least a 'public option.'”
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Come back tomorrow for Part 3!

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