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R&D tax credits among anticipated changes for US healthcare

Published on 24/02/09 at 01:28pm

With the election of Barack Obama, widespread changes are anticipated for US healthcare and ultimately for the pharmaceutical industry. Although President Obama's proposed changes of universal healthcare coverage and continued support of R&D tax credits are likely to boost pharma revenues, certain initiatives are set to be met with objections within the industry, say analysts Datamonitor.

A key feature of Obama's election manifesto was to address the unavoidable issue of America's growing uninsured population, making healthcare affordable to all US citizens, especially for children, and regardless of pre-existing conditions Currently, the federal government provides health coverage through Medicare (for the elderly), Medicaid (for poor families and the children of families that do not qualify for Medicaid) and military programs. US healthcare expenditure rose rapidly from 9.1% in 1980 to 17% in 2008, and this rise is expected to continue over the next decade, outpacing income and inflation. As such, healthcare expenditure will account for 20% of the gross domestic product, or $4.3 trillion, by 2017 if left unchecked.

Obama's new universal healthcare program will increase demand for drugs, both branded and generic, reduce the need for free drug programs due to universal healthcare coverage, and boost pediatric drug and vaccine programs through the extension of the State Children's Health Insurance Program (SCHIP). However, these major reforms in healthcare will come at a price, and the government is expected to look to pharma to recoup some of the costs through cheaper drugs.

Despite the likely financial implications of universal healthcare on the industry, the proposal that pharma is most likely to strongly oppose is the introduction of direct price negotiation with Washington. The argument that pharma puts forward is that it already negotiates drug prices with insurance providers for public plans and offers significant discounts. If introduced, this change could potentially have a dramatic affect on drug makers profits as the government could literally dictate drug prices, leaving pharma no option but to accept or lose out on one of its most lucrative markets.

Comparative effectiveness is another tool on the Obama agenda set to help cut the wastefulness of the US healthcare system. However, this is another proposal not favored by the pharma industry, which claims it will compromise patient care, and as such, could be a tough sell for Obama with physicians and patients. Furthermore, Washington will need to ensure that the system is based on credible scientific data, as any controversy will only lead to confrontation, delays and ultimately failure.

However, Obama's continuing support for R&D tax credits will be seen as offering the pharma industry an olive branch, and attempts to counter pharma's primary argument of lack of state support for pharmaceutical innovation. Obama's backing of scientific technology and the recent introduction of stem cell research are all positive for the pharmaceutical industry, as they will create opportunities for new innovative drug research, an area severely circumscribed by the Bush administration.

The realisation that tackling healthcare spending is critical to the country's long-term fiscal wellbeing now requires some major changes to US healthcare. Given the current economic crisis, some of Obama's healthcare initiatives may have to wait, with the exception of SCHIP. On the plus side, this will provide the pharma industry with extra time to lobby Washington in order to try and negotiate the best deal it can. Inevitably, pharma will have to accept losses in certain areas, however, potential compromises in other areas such as biosimilar marketing exclusivity are anticipated.

Related research:

2009 Trends to Watch: Healthcare Technology

Building a Network of Networks to Achieve Interoperability in Healthcare (Strategic Focus)

Pharmaceutical Company Outlook to 2013

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