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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.