What Happens to Innovation in Healthcare?

Writing in Medical Progress Today, Rita Numerof, states that now that PPACA has been upheld, downward pressure on innovation will [...]

July 5 2012 by ChiefExecutive.net


Writing in Medical Progress Today, Rita Numerof, states that now that PPACA has been upheld, downward pressure on innovation will accelerate and will be followed by more consolidation in the marketplace. The passage of the PPACA imposes new costs on the healthcare industry that cannot be passed along in this cost-constrained environment, essentially reducing available margin. The risk-to return ratio was already being strained by the growing cost of regulation. PPACA will dampen the appetite for innovation and its associated risk.

For example, Obamacare’s 2.3 medical-device excise tax, which the industry maintains will destroy about 14,000 and perhaps up to 47,100 jobs, will undermine the development of new products. Note that this tax is on sales, not profits. It cuts into the top line, not the bottom line. If a medical device maker not repealed, this tax will start hitting medical-device makers on January 1, 2013. C.R. Bard, a medical device maker in Murray Hill, NJ sated that the tax will have harmful knock-on effects for their products and services. The medical-device industry has made repeal of the excise tax a top priority. Forbes reports that even pro-Obamacare Democrats like U.S. Senators Amy Klobuchar and Al Franken, and candidate Elizabeth Warren, advocate repealing this tax. Although economically harmful and even deadly, the tax comprises a small part of Obamacare.

Another aspect of President Obama’s health care law and its impact on health care innovation, is the creation of a comparative effectiveness research (CER) institute. Although designed to encourage the use of effective therapies the CER institute is barred from being used in medicare coverage decisions under the new law. The National Institute for Health Care Reform (NIHCR) has issued a policy report warning a CER could stifle private sector innovation. NIHCR thinks CER could dampen development of new, potentially effective therapies by creating additional hurdles for innovators. Critics of government involvement in comparative effectiveness argue it will limit what the private sector is willing to do to develop new products.

Gregory Schneider, head of the consumer driven health care project at the Kansas Policy Institute, points out leading voices in medicine such as Harvard Medical School Dean Jeffery S. Flier and Cleveland Clinic CEO Dr. Toby Cosgrove warn comparative effectiveness research could stifle innovation by over-regulating, hurting innovation in the private sector. “American health care companies have made improvements to the caliber of care through innovations in pharmaceuticals, technology, and a variety of different ways,” Schneider said. “Obamacare will stifle innovation by removing the incentives to produce new technologies as health care spending by government crowds out the spending by private companies.”

But PPACA is only the tip of the iceberg. There would have been business model changes for manufacturers anyway. Diminished reimbursement is forcing a requirement for greater evidence, and thus, fewer me-too products. Global reference pricing and regulatory harmonization are forcing more transparency. Pressures for demonstrated value will require a shift in investment from commercial channels to R&D. Big pharma has already cut back its r&d spending even before the debate over Obamacare.

Manufacturers must continue to innovate; significant unmet medical needs remain. Patent protection (outside the domain of PPACA) will be key to this as will more visible engagement with the patient community in the identification of real unmet need and ongoing monitoring in post-market safety and real world evidence (RWE).

Read: SCOTUS and the Future of Medical Innovation
Read: Obamacare CER Institute Seen as Threat to Innovation