OBAMA'S HEALTH CARE PLAN

Obama's Health Care Plan & Pharmaceutical Manufactures

Obama's Health Care Plan & Pharmaceutical Manufactures

Introduction

Reform of our healthcare system is very likely to occur in the next presidential administration. The American people are calling for change and both candidates have responded. However, unlike in 1993, when President Clinton's attempt at healthcare reform was stymied in Congress, the House and Senate appear as eager as the voters to address the issue. Several different plans have been proposed by both of the presidential candidates as well as influential members of Congress, and each plan could significantly impact how pharmaceutical companies operate in the marketplace today.

Discussion

Payer mix represents the percentage of prescriptions that are reimbursed by a private health insurance plan, government funded health plan or paid for in cash by an individual. Currently, most civilian, non-institutionalized Americans are covered under a private health plan (61%) versus those covered under a government funded plan (21%) or uninsured (18%). Payer mix is relevant because on average pharmaceutical companies receive very different revenues for the same drug depending on whether it is ultimately reimbursed by a private health plan, government funded plan or paid for in cash. Using average wholesale price (AWP) as a benchmark, exhibit 2 shows that on average, net sales are highest for drugs paid for in cash and lowest for drugs reimbursed under a government funded plan. As a result, a shift in the payer mix from individuals or private plans to government plans would have a negative impact on profi tability for a pharmaceutical company (all else being equal).

Analysis shows that while Obama and Clinton's plans differ in their approach they would both serve to increase the role of government in providing healthcare coverage. McCain's plan, however, would not necessarily have a net impact on the payer mix in either direction. Reimbursement, as we use the term in this paper, is the sales price that a payer for a drug ultimately pays, net of any rebates or discounts it receives. Reimbursement is important to pharmaceutical companies because any rebates or discounts that impact the price of a drug to a payer also impact pharmaceutical company revenue and profi ts (along with quantity). Generally speaking, as a payer's negotiating power increases, either through government legislation or concentration of buyers, reimbursement levels go down. Government payers, a highly concentrated group of purchasers often with legislated pricing rules, ...