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Appendix G
Health Care Reform Legislation
The 103rd Congress engaged in a landmark debate about the future scope of
health care its organization, financing, and delivery. Pharmaceutical companies
participated in the national dialogue and will continue to scrutinize any future
legislation. Future legislative features that are likely to have the greatest effect
on private sector investment in anti-addiction medication development are:
the degree of universal coverage (the expansion of health insurance
to some or all of the uninsured);
the inclusion of a prescription drug benefit and offsetting prescrip
.
tion drug rebates;
.
the inclusion of drug abuse treatment benefits, and the extent to
which these benefits are restricted, managed, or treated relative to other
medical benefits;
· the nature of additional insurance reform, such as eliminating
exclusions for preexisting conditions;
.
the financing of any reforms and the measures imposed to set price
controls; and
· the fate of Medicaid.
In the following paragraphs each feature is discussed to summarize its conse-
quences for commercial development of anti-addiction medications.
242
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APPENDIX G
243
UNIVERSALITY OF COVERAGE
Universal or near-universal health insurance coverage has been one goal of
health care reform efforts. Only about 85 percent of the population currently has
coverage under private or public health insurance (CRS, 1994~. If coverage were
extended to more of the uninsured, especially to those who are drug dependent,
the effect would likely benefit investment in anti-addiction medications, as long
as the insurance benefits are at least partially tailored to the needs of that group.
Greater insurance coverage means a shift from the public funding system
(primarily from block grants arid state alcohol alla drug agencies) to the private
insurance rolls. Pharmaceutical companies prefer insurance financing rather than
direct subsidies from federal and state agencies, because there is the perception
that private coverage commands higher revenues. Pharmaceutical companies view
insurance coverage as less risky for return on investment because private
insurance coverage is more lucrative and resilient than are direct public subsidies,
it increases the demand for treatment, including medication, and it increases the
supply of services (thus possibly reducing waiting times for treatment)
(Rogowski, 1993~.
PRESCRIPTION DRUG BENEFITS
A prescription drug benefit' is also favorable to pharmaceutical investment
in research, but not necessarily for anti-addiction medications unless future
medications are non-narcotic agents. Many of the legislative proposals have
included a prescription drug benefit in the minimum benefit package required of
employers, and some of the proposals also extend the prescription drug benefit
to the Medicare population. The inclusion of the benefit in employer health alarm
is forecast to have only a modest positive effect on sales because almost all
employer policies already have this benefit (CBO, 1994~. The expansion of the
benefit to the Medicare population is far more significant because the induced
demand is expected to increase pharmaceutical revenues by 4 - percent (CBO,
1994~. However, the Medicare expansion under some proposals is offset by a
'The typical prescription ding benefit offers no advantage to opiate addicts who
receive daily doses of medication. The proposed benefit usually contains a $5 copayment
for what is assumed to be a 30-day supply. With methadone dispensed 7 days each week
and LAAM 3 days each week, due, in part, to regulatory concerns for diversion, it would
be cheaper to pay for each dose out-of-pocket than to provide coverage.
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244
DEVELOPMENT OF MEDICATIONS
proposed prescription drug rebate similar in design to the Medicaid rebates.
Attempting to forecast the combined effect of a Medicare expansion and rebate
on pharmaceutical research and development, the Congressional Budget Office
concluded that, "the returns from drug company research and development would
be unlikely to change; increases resulting from one provision would wash out the
decreases resulting from another" (CBO, 19941. The report also noted that a
Medicare rebate might induce drug companies to shift research resources away
from medications for the elderly. Pharmaceutical companies have stated their
opposition to a Medicare rebate, especially because the elderly make a
disproportionately high percentage of pharmaceutical purchases (PMA, 19931.
If the effect of a prescription drug benefit is to increase pharmaceutical
revenues, then it should lead to more pharmaceutical research and development
(R&D).3 The large increase in pharmaceutical revenues in the 1 980s was
accompanied by increased investment in R&D (OTA, 19931. But there are no
guarantees that additional research revenues would be devoted to developing anti-
addiction medications. Throughout the 1980s, when revenues and R&D were
escalating, there was such an insignificant commitment to this area that Congress
enacted legislation to create a medications development research program in the
National Institute on Drug Abuse (NIDA) to stimulate industry interest in anti-
addiction medications (Chapter 31.
DRUG ABUSE TREATMENT BENEFITS
The scope of drug abuse benefits for treatment of addiction potentially has
the greatest and most direct effect on investment in anti-addiction medications.
A generous benefit would almost certainly attract more pharmaceutical
investment, but because of the inability to forecast the extent of costs, benefits
are generally limited to brief interventions and short-term treatment. The Health
Security Act, for example, proposed coverage for up to 30 days in residential
treatment or 60 days in day treatment and up to 30 outpatient psychotherapy
Prescription drug manufacturers are required to rebate state Medicaid programs for
their prescription drug purchases under the Medicaid Rebate Law, passed as part of the
Omnibus Budget Reconciliation Act of 1990 (P.L. 101-508~. For 1994 and thereafter, the
amount of the rebate is set at 15.2 percent of the average manufacturer's price for a brand
name drug and 11 percent for a generic drug.
Overall, R&D expenditures have increased dramatically since 1970, although in the
past year growth has slowed. In 1994, R&D is projected to increase by 9.3 percent, as
compared with annual increases averaging 16 percent between 1980 and 1992 (PMA,
1993~.
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APPENDIX G
245
visits (Arons et al., 1994~.4 Such limits would not cover most of the opiate- and
cocaine-dependent patients in treatment programs. Their average length of stay
upon discharge is about 320 days in methadone maintenance, 47 days in
residential, and 179 days in outpatient drug free programs (Batten et al., 19921.
When benefits are exhausted, the patient would be shifted back to public
subsidies. The current reliance on a publicly subsidized treatment system is
unlikely to change (Harwood et al., 19941.
Should the benefit structure of future legislation create incentives to seek
primary care instead of specialty care for treatment of drug dependence, primary
care physicians will need additional training in addiction medicine. In light of the
movement toward increased reliance on primary care physicians for diagnosis and
treatment of all medical conditions, the committee strongly supports increased
training in addiction medicine for primary care providers (Chapter 6~.
INSURANCE REFORM
Management of drug abuse treatment benefits and parity of the benefit with
other medical conditions hold the most favorable prospects for pharmaceutical
investment. Parity of the benefit means that the coverage is not discriminatory;
it is provided on the same basis as are benefits for other chronic and relapsing
conditions. As described earlier, managed benefits can increase access, allowing
more patients to receive appropriate treatment. The more patients that are in
treatment, the greater is the demand for prescription drugs.
Drug addiction is considered a chronic, relapsing medical condition as are
asthma, hypertension, and diabetes. All of those disorders are characterized by
a constellation of genetic, biological, behavioral, and environmental factors. With
respect to hypertension, behavioral choices, such as ingestion of high-fat foods,
failure to exercise, and non-compliance with medication, can contribute to the
onset and severity of the disorder. Unfortunately, the overall similarities between
drug addiction and other chronic medical disorders remain unappreciated by the
general public, which sees addiction only as a failure of will power or evidence
of a social disorder. The stigmatization of drug dependence and its treatment
have hindered pharmaceutical development (Chapter 9~.
4The Health Security Act also provided for up to 120 days of counseling in exchange
for inpatient or residential coverage.
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246
DEVELOPMENT OF MEDICATIONS
FINANCING HEALTH CARE REFORM
AND THE FATE OF MEDICAID
The financing of health care reform has been proposed to come from new
taxes on tobacco, payroll taxes, and restrictions on the growth of Medicare and
Medicaid spending. Medicare has such a negligible role in financing the
treatment of addiction that curtailing Medicare spending is not likely to affect
either the avenues of treatment or the demand for anti-addiction medications.
Medicaid spending reductions carry more significance, but the outcome for
development of anti-addiction medications is far from clear. Decreases in federal
Medicaid spending could force the states to restrict Medicaid coverage even
further. The states are statutorily given much latitude in structuring Medicaid
benefits already to the detriment of those who need treatment, but who rarely
qualify (IOM, 1990~. A reduction in Medicaid drug abuse treatment benefits
would result in the shifting of patients from Medicaid to state agency and block
grant funding (assuming those sources grow to meet the demand). Pharmaceutical
companies are more favorably disposed to Medicaid financing than to direct
public subsidies because Medicaid is an insurance mechanism (Rogowski, 1993~.
If Medicaid beneficiaries are shifted to private insurance by new subsidies for the
purchase of private insurance, however, the pharmaceutical industry could
benefit. Thus, the overall effect of reductions in Medicaid spending is uncertain.
It will depend on the extent to which current Medicaid recipients purchase
subsidized private insurance or are relegated to the public treatment system.
Additionally, the imposition of government price controls to reduce the costs
of health care is inimical to the pharmaceutical industry. Price controls are seen
as an unwarranted intrusion in the marketplace, and cutbacks in R&D spending
have been threatened.
CONCLUSIONS
The most fundamental element of any health care reform the extension of
health insurance to at least some of the uninsured can only have a beneficial
effect on the development of anti-addiction medications. The inclusion of a
prescription drug benefit also would encourage pharmaceutical development in
general, but would not specifically guarantee investment in anti-addiction
medications. The scope of drug abuse treatment benefits under any new
legislation will have the most profound and direct effect on investment in anti-
addiction medications. A pharmaceutical company contemplating investment will
be more eager to proceed if the benefit does not impose arbitrary restrictions on
treatment. A managed benefit that matches patients to the most appropriate care
and a benefit that recognizes the commonalities between drug dependence and
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APPENDIX G
247
other chronic, relapsing medical conditions holds the greatest prospects for
pharmaceutical investment. To remove the obstacle of uncertain or limited
treatment financing, the federal government should consider providing adequate
health insurance coverage for drug abuse treatment in a manner that is consistent
with that for other chronic and relapsing medical conditions. Policies should be
developed to provide for the matching of patients with the most effective
treatment in the least restrictive setting.
REFERENCES
Arons BS, Frank RG, Goldman HH, McGuire TO, Stephens S. 1994. Mental health and
substance abuse coverage under health reform. Health Affairs 13~1~:192-205.
Batten H. Prottas J. Horgan CM, Simon LJ, Larson MJ, Elliott EA, Marsden ME. 1992.
Drug Services Research Survey Final Report: Phase II. Waltham, MA: Bigel Institute
for Health Policy, Brandeis University. Contract number 271-90-8319/1. Submitted
to the National Institute of Drug Abuse, February 12, 1992.
CBO (Congressional Budget Officer. 1994. How Health Care Reform Affects Pharmaceu-
tical Research and Development. Washington, DC: CBO.
CRS (Congressional Research Service). 1994. Health Insurance. Washington, DC: Library
of Congress, CRS. CRS Report No. IB 91093.
Harwood HI, Thomsom M, Nesmith T. 1994. Healthcare Reform and Substance Abuse
Treatment: The Cost of Financing Under Alternative Approaches. Fairfax, VA:
Lewin-VHI.
IOM (Institute of Medicine). 1990. Treating Drug Problems. Gerstein DR and Harwood
HI, eds. Washington, DC: National Academy Press.
OTA (Office of Technology Assessment). 1993. Pharmaceutical R&D: Costs, Risks and
Rewards. Washington, DC: U.S. Government Printing Office. OTA-H-522.
PMA (Pharmaceutical Manufacturers Association). 1993. Trends in U.S. Pharmaceutical
Sales and R&D. Washington, DC: PMA.
Rogowski JA. 1993. Private Versus Public Sector Insurance Coverage for Drug Abuse.
Santa Monica, CA: RAND Drug Policy Research Center. MR-166-DPRC.
Representative terms from entire chapter:
drug abuse
