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US healthcare reform Posted 03/09/2010

The tide is finally changing in the US with reform of the healthcare system finally set to provide universal health care to most of the US population. This is great news for the American citizen, but what are the implications for generics and biosimilars in this changing environment?

The US is the only wealthy industrialised country not to provide some form of universal health care. Some 46 million Americans are uninsured – a figure that without reform was set to rise to 72 million by 2040.

Healthcare expenditure in the US is currently about 18% of the gross domestic product (GDP). Based on historic rates, this share is projected to rise sharply, reaching 34% of GDP by 2040.

The new health reform is brought into force by the Patient Protection and Affordable Care Act (amended by the Health Care and Education Reconciliation Act) and was signed into law on 23 March 2010 by President Barack Obama.

Economic justification for the reform was provided by a 2009 report from the Council of Economic Advisers. The report claims that reform would slow the growth rate of healthcare costs, increase the average family income, increase the economic well-being of the uninsured by substantially more than the costs of insuring them, increase labour supply and improve the functioning of the labour market.

The reform aims to bring affordable health care to 30 million more people, bringing the total to 95% of Americans having healthcare insurance. However, due to the complexities in the two acts, it will be 2018 before all the measures are implemented.

How does the reform affect generics and biosimilars?

Upon enactment the minimum Medicaid (health insurance) drug rebate for branded drugs increases from 15.1– 23.1% of the average manufacturers price (AMP) and for generics this will increase from 11–13% of AMP.

Upon enactment the reform will also allow a pathway for marketing approval of biosimilar medicines, after a period of 12 years of exclusivity for the originator biological.

From January 2010 the pharmaceutical industry will have to provide drugs at 50% discount to the elderly (in the Medicare system). Additional discounts on both branded and generic drugs will be phased in so that 75% of drug costs will be covered by the health insurance.

From January 2011 annual fees for pharmaceutical companies (with sales of more than US$5 million) will be implemented based on a percentage of their market share.

Of course reductions in prices and taxes on pharmaceutical companies will not be welcomed by generic manufacturers, however the increased market – due to the increased number of insured Americans – should hopefully go some way to redress this balance.

References

Lee J. The Economic Case for Health Care Reform. The White House Blog. 2 June 2009.

Executive office of the president council of economic advisers. The economic case for healthcare reform. June 2009.

Public Law 111 - 148 - The patient protection and affordable care act. US Government Printing Office. Approved 23 March 2010.

Public Law 111 - 152 - Health Care and Education Reconciliation Act of 2010. Government Printing Office. Approved 30 March 2010.

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