In a recent landmark judgement, the US Supreme Court passed the healthcare reform and ruled that government has constitutional right to ask all US citizens to buy health insurance or pay penalty. Indeed, this is a great development for the American insurance industry, but is beneficial for Indian pharma as well since it will add 26mn new policies. Apart from increase generic usage, interchangeability of biologics will allow Indian biosimilars to enjoy the same status as small molecule generics of off-patented drugs. We highlight that companies like Dr. Reddy’s and Biocon have made good progress in biosimilar programs, while Cadila and Lupin are also scaling up.
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US Supreme Court upheld healthcare reform
The US Supreme Court recently passed the landmark ruling, dubbed ‘Obamacare’, thereby upholding the controversial massive reform of healthcare coverage initiated by the President Barack Obama. Obamacare or Patient Protection and Affordable Care Act (PPACA) requires most Americans to have health insurance and is effective from 2014. This legislation could, however, get derailed if Mr. Obama is not re-elected or the Republican Party opposes it. The Supreme Court ruled that the most debated part, requiring all US citizens to buy health insurance or pay a penalty, was "constitutionally valid" as the Obama administration justified the penalty as a tax. It also ruled that the government has the power "lay and collect taxes."
Salient features of the US healthcare reform
The Act will come into force beginning 2014. All US citizens will have to buy insurance or pay penalty that will be anywhere between 1% of the income in 2014 to 2.5% of the income by 2016. Currently, there are 250mn Americans insured, and Obamacare will add 26mn policies to health insurance. The governments, both state and federal, on their part will be subsidising the plan. Federal health spending is expected to rise from 5.6% of GDP in 2011 to 9.5% of GDP in 2035.
Impact of reform on global pharma industry
For global pharma companies, increased demand of drugs due to greater number of insured consumers will largely offset higher fees and rebates associated with healthcare reform. Though costs related to healthcare reform will be upfront, the increased demand is unlikely to begin until 2014 (when the mandate goes into effect). The Healthcare Reform Law imposes an annual fee on any “covered entity engaged in the business of manufacturing or importing branded prescription drugs” beginning in 2011. Branded prescription drugs and biologics covered include: (i) Any prescription drug approved under section 505(b) of the FDA; and (ii) any biological product for which an application was submitted under section 351(a) of the Public Health Service Act. Sales of generic drug products will not affect calculation of annual fees.
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