U.S Healthcare System: Trends in the Pharmaceutical Industry

Various factors have influenced the transformation of the health care industry in the world. In the U.S, aspects such as financing changes and legislation guiding the activities of pharmaceutical companies have influenced developments witnessed in the health care industry.  In addition, pressures imposed on professionals in the industry such as negative effects of managed care arrangement on physician autonomy and clinical freedom have been advanced to compromise physician job satisfaction. Such issues have changed the landscape of the health care industry as highlighted subsequently in a review of factors that have influenced changes in the pharmaceutical industry and career implications of changes in the health care industry.

How Regulations in the U.S. Impact the Claims and Facts Presented in the Video

The video by Tribeca Knowledge (2011) presents a case for the expected change in the pharmaceutical industry following the expiry of various pharma patents in 2012. The video argues that, with an estimated $60 billion loss in patent revenue expected following the expiry of patents in 2012, and the decline in FDA drug approvals from an all-time high in 1996, generics will continue their dominance over the branded drugs for the foreseeable future. Such a change, as presented in the video, is likely to shift the attention of the pharmaceutical companies to emerging economies where the lower prices of the generics are likely to attract higher demand. To survive the changes, the video argues that mergers and acquisitions will prevail, not only as a way to ensure quick penetration in the emerging markets, but also as a means of eliminating duplicates. As noted by GSK CEO in the video, the rise of generics may also open opportunities in underdeveloped world where access to medication is curtailed by the prohibitive pricing of branded medication. The rise in generics accompanied by expiry of patents may however dissuade development of new drug compounds, and, as argued in the video, restrict such development to small venture capital-funded entities.

Legislation that affects the pharmaceutical industry is likely to influence the claims and facts presented in the case in various ways. An example would be in respect to regulations and legislation concerning drug approval process. For example, despite the declining rate of approvals by the Food and Drug Agency (FDA) as noted in the video, various attempts have arisen to expedite the approval process of some categories of medications. Danzon and Keuffel (2013) for instance cite the 1997 FDA Modernization Act that sought to enhance the approval process for novel drugs (p. 12). The Act recognizes the need to designate products that “are intended for the treatment of a serious or life-threatening condition [and which] demonstrate the potential to address unmet medical needs for the condition” (FDA, 2005 (b) as cited in Danzon & Keuffel, 2013, pp. 11 & 12). Similarly, inclusion of various medications under the coverage of Medicare part D reimbursement has been suggested to spur research and development activities to meet the demand that has arisen (Blume-Kohout & Sood, 2013). Such observations have implications for the claim made in the video that R&D activities will mainly be a preserve for venture funded small entities. On the contrary, legislation that provides incentives to develop drugs whose demand is eminent are likely to attract even the larger companies  who may have the resources to realize better economies of scale.

Another issue noted in the video influenced by legislation is the increase in generics following patents expiry. Specifically, as observed by Danzon and Keuffel (2013) the Hatch-Waxman Act has been critical to enhancing entry of generic following expiry of originator’s patents.  State-level legislation has also reinforced the effect of the Hatch-Waxman Act by allowing the use of generics as substitutes to originator medication unless where physicians appends a note that the brand is required to the prescription (Danzon & Keuffel, 2013). With insurance firms becoming core stakeholders in financing healthcare, and clamor for cost containment in health care provision heightening, the rise of generics appears to be in line with the predictions presented in the video.

Where the Biggest Opportunity will be for the Pharmaceutical Companies

The entry to emerging markets will offer an opportunity for the pharmaceutical companies to expand their revenues on a global market. As noted by Danzon and Keufel (2013), companies can utilize price discrimination in such countries to get marginal revenue for funding research and development activities. Even where various countries seek to standardize prices by quoting price references offered in origin countries (Danzon & Keufel, 2013), the huge population in countries such as China, India and Brazil offers pharmaceuticals opportunities for pharmaceutical companies to enhance their revenues. However, as observed in the video, realizing such opportunities will be possible only when entities can use innovation to provide affordable medication in such regions.

Drug Pricing Practice in the US and Belgium

Observations that the US residents as much as two-thirds more than Europeans in per capital biopharmaceutical use has led to the clamor to reduce prices in the US. However, as a RAND report observes, such a status has arisen more out of use of more expensive medications in the US than in Europe, rather than price differences per se (Lakdawalla et al., 2008). To contribute to the evaluations of price differentials in the US and the EU, this section evaluates the pricing practices in the US and Belgium.

In the US, various policy alternatives have affected the prices offered on drugs. Such policies may be categorized into those that reduce manufacturers’ revenues while not affecting consumer prices, and those that reduce consumer prices while not affecting manufacturer prices (Lakdawalla et al., 2008). The initial policy alternatives include aggressive negotiations that pressure manufacturers to lower their prices. One example of these has been pressure for pharmaceutical companies to lower the prices of antiretroviral products in the low-income countries, and subsequently in the middle-income countries (Bate & Boateng, 2007), which had implications of US consumers paying for the cost of development of such drugs through a higher discriminated price. The second group of policies, which reduce consumer prices but not manufacturer prices, can be exemplified in changes in legislation to reduce the amount of copayment. Such policies, as an example, have been evident with the enactment of the Medicare Prescription Drug, Improvement and Modernization Act (MMA) that has provided insurance coverage for prescription drugs for beneficiaries of Medicare program (Lakdawalla et al., 2008). However, consensus still lacks as to whether such Medicare initiatives have not had an effect on manufacturer prices by enhancing the market power of private insurers to negotiate for lower costs. However, even if the Medicare change has led to the reduction of manufacturer prices, the subsequent observed reduction in copayments (Lakdawalla et al., 2008) indicates that, at least, the act has had price benefits to consumers.

In Belgium, various determinants also interact in determining pricing policies of pharmaceutical companies. For example, in the Study by Adriaen, De Witte and Simoens, the pricing of originator and generics is a factor of determinants such as regulatory aspects, market competitive forces, manufacturer power, and medication class. An example of the regulatory aspects was noted to be reference price reductions and changes in prescription status of medications. The changes in prescription status have also had a role in drug prescription in the US, which is exemplified by the inclusion of mental health prescriptions for reimbursement in public insurance programs (Carpenter, 2005). In respect to price reference prices, although the US prices are essentially based on a free pricing model, the rise of health maintenance organizations (HMOs) and other Pharmacy Benefit Managers (PBMs) and their policy to encourage a set of drugs that offers a price incentive could have an effect of similar to price references (Atella, Bhattacharya, & Carbonari, 2012).  Price competition in Belgium has occurred in two fronts; among generics and between originator and generic medications. Such diverse nature of determinants of drugs prices implies that no single strategy can determine the direction of drug prices of both originator and generic medication in both countries, but regulation and competition appear to have an effect in both countries. As observed by Lakdawalla et al. (2008) regulation pursued via manufacturers’ price controls seems to have little beneficial effect, whereas that which involves reduction in copayments, without necessarily reducing the manufacturers’ prices has shown potential benefits for cost containment in the US.

Career Trends in Healthcare Related Industries and the Career that will prove to be the Most Economically Rewarding

The health care industry offers various career opportunities including careers for medical personnel and health care executives. With respect to medical personnel, the growth of the aging population as a proportion of the entire US population implies a rise in demand for care professionals. For instance, as per the 2010 census statistics, people aged 65+ years were noted to have increased at a higher rate (15.1 percent) as compared to the rate of increase in the total population (9.7 percent; U.S. Census Bureau, 2011, p.1). Such an increase implies that nursing home and home based care will become a cores service provided for the population in years to come. With Nurse staffing levels in such care environments being shown to have a positive association with the care quality (e.g. Dyck, 2007), and advocacy for appropriate nurse staffing ratios and nurse leadership (Zhang, Unruh, Liu, & Wan, 2006) nursing professionals will continue to have a high demand in the US.

Nevertheless, the clamor for cost containment in various health care aspects makes the career of healthcare executives to be the most economically rewarding in the near future. For instance, as Kapphahn, Morreale, Rickert and Walker (2006) argue, managed healthcare may turn out to be the most feasible way for enhancing access at a relatively affordable cost for various care needs. Similarly, legislation such as the Patient Protection and Affordable Care Act’s (ACA) that, for instance expands Medicaid coverage, implies that healthcare stakeholders will need the services of managers and administrators whose skills can enable the entities to contain costs while enhancing the capacity to enhance their service provision. As such, the services of healthcare executives will continue to be highly demanded especially with the likely increase in healthcare costs arising from provision of care to the aging population. Such rising costs will enhance the pressure to contain costs, which will continue to create a demand for healthcare executives in various healthcare organizations.

Effect of Pressures placed Upon Medical Professionals – Specifically Doctors

The practice of medicine in the recent decades has seen dramatic changes in the physician-patient relationship. One of these changes has been the issue of managed care where physicians provide services based on an arranged care plan. In a study by Stoddard, Hargraves, Reed and Vratil (2001) physicians who received high levels of managed care revenue reported being less satisfied than those receiving low managed care revenues. Similarly, the physicians tied to managed care plans reported having lower clinical freedom as opposed to those whose core practice was not integrated into such plans. Such effects were attributed to lack of professional autonomy and lower incomes for services rendered. However, even after controlling for incomes, Stoddard et al (2001) found out that the lack of professional autonomy under managed care arrangements continued to affect physician satisfaction levels adversely.

On the contrast, other studies have reported mixed findings, for instance reporting increased satisfaction with managed care organization with respect administrative functions. For instance, in a study by Linzer et al. (2000), physicians practicing under HMO settings had higher average satisfaction rates  concerning administrative issues as compared to practice within other service-provision arrangements. However, the HMO physicians reported lower satisfaction rates compared to other settings with respect to resources and interactions with staff and community members. Issues such as time allowed with patients and resources access affected overall satisfaction rates of physicians under HMO. As such, the authors concluded that physician under HMO are generally less satisfied compared to physicians in other practice arrangements.

Such adverse effects of managed care point to the effect of various pressures on the attractiveness of physician careers. For instance, as observed by Linzer et al. (2000) the lower job satisfaction influences physician turnover in such managed care plans. This necessitates the restructuring of patient-physician interactions under the managed care to allow for higher professional autonomy for physicians. One way of doing this would be allowing for longer periods for new patient visits to enhance more quality interactions necessary for quality provision of care. Although such longer periods may reduce the number of patients a physician attends to, it would increase the quality of care that such physicians offer the patients they attend to (Grembowski et al. 2005). Another approach would be for staff training to offer better support to physicians serving under the HMO plans. Such an issue arises since lack of effective support resources is noted to be one of the contributors to job dissatisfaction among physicians working under HMO plans (Linzer et al., 2000; Stoddard et al., 2001).

Role of Health Policies and their Impact on Organizations over the next Decade

Health policy provides a benchmark of the desired health status or the strategies to achieve the desired status in a population. The policies continue to play a critical role of addressing health challenges facing the community. Health policies also allow commitment of public resources to address the challenges they target. For instance, policies concerning access to care for minority groups allow government resources to be used to promote such access. Use of resources may arise through ways such as funding, subsidies, and tax reliefs targeted to organization providing services covered under the health policy.

Some of the health policies are directed towards improving the welfare of society or a section of disadvantaged population. For instance, realizing the health needs of the elderly, public insurance options such as Medicare arose  as health policies initially but later reinforced by legislation (Moon, 2011). Such initiatives have led to increased access to healthcare for the elderly, which has resulted in better lives during the old age (Moon, 2011). Health policies that have arisen out of international efforts, such as the vaccination of small children for various diseases, have led to the elimination of debilitating diseases such as small pox. Similarly, policies supporting the subsidization of medications such as antiretroviral drugs have led to increasing access of such medications to a population that would not otherwise afford the drugs (Bate & Boateng, 2007). As such, health policies have had a central role in addressing health challenges in society.

Going forward, health policies will continue to be of significant effect in the health care industry. Since provision of healthcare is a social responsibility for every government worldwide, health policies will continue to occupy a central role even in the next decade. Various emerging issues such as increasing cost of healthcare might necessitate the use of health policies to enable access to care for groups that cannot afford such care. As such, it would be challenging to leave the private enterprise to control healthcare aspects since the profit motive of such enterprise may avert the provision of essential care to individuals who cannot afford care. In this respect, health policy will continue to be a core instrument through which government maintains regulation of stakeholders in the industry, and upholds its social responsibility to avail healthcare to all its citizens.

Reflection on Learning from the Assignment

The assignment has provided various insights into the intricate nature of relationship among healthcare stakeholders that have influenced the cost of care. In the first instance, the events in the pharmaceutical industry that influence the cost of healthcare have highlighted need for funding of new-drug development initiatives. With expiring patents leading to high competition following entry of generics, originator pharmaceutical companies may find it challenging to invest in R&D activities. The high cost implications of R&D without an assured return on investment even where the product passes the safety and efficacy evaluations indicates that companies may fail to embark on such development, thus crippling the development of novel treatments. On the contrary, failure to allow entry of generics may lead to unaffordable pricing of originator medicines. In such a way, government initiatives need to focus on subsidizing the R&D costs for originator companies, such that the companies can compete effectively with generics without having to price the product out of the reach of the patient.

The predominance of cost as the single most determinant of developments in the healthcare industry has also been reinforced by changing nature of careers in the industry. Whereas the need for medical personnel such as nurses is heighted with an increasing proportion of the aged, a more poignant need for healthcare executives arises with the need to contain costs. Such pursuit of cost containment is evident in the rise of managed healthcare provision models. However, the managed healthcare provision models have brought challenges of lower physician satisfaction, which may influence the intake of physicians in future. To manage such diverse interests of stakeholders, health policy will continue to be a central tool that ensures access of care services to the underprivileged population.

References

Adriaen, M., De Witte, K., & Simoens, S. (2008). Pricing strategies of originator and generic medicines following patent expiry in Belgium. Journal of Generic Medicines, 5(3), 175-187. doi: 10.1057/jgm.2008.8

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Dyck, M. J. (2007). Nursing staffing and resident outcomes in nursing homes: Weight loss and dehydration. Journal of Nursing Care Quality, 22(1), 59-65.

Grembowki, D., Paschane, D., Diehr, P., Katon, W., Martin, D., & Patrick, D. L. (2005). Managed care, physician job satisfaction, and the quality of primary care. Journal of General Internal Medicine, 20, 271-277, DOI: 10.1111/j.1525-1497.2005.32127.x

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Tribeca Knowledge (2011). Pharmaceutical industry in transition: Dramatic changes ahead, how will you survive? Retrieved from http://www.youtube.com/watch?v=4-7I-t6JQKA

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