Executives at a big U.S. drug company say the Patient Protection and Affordable Care Act (PPACA) is one of the factors giving payers in the United States more power to bargain for better prices.
The executives at the company, Eli Lilly and Company (NYSE:LLY), talked about the effect of PPACA and other drivers on drug prices last week, at a meeting the company held to tell investors about its plans for the coming year.
John Lechleiter, Lilly’s president, said the company will cope with the effects of expiring drug patents and payer price resistance by developing treatments for diabetes, cancer and sick animals, and by holding down operating expenses.
Lechleiter and other company executives also answered questions about effects of changes in the U.S. health finance system on the company’s performance.
“The Affordable Care Act of 2010 was the most significant U.S. legislation of its kind since Medicare,” Lechleiter said. “It’s reshaping health care and health care delivery.”
To learn more about what Lechleiter and his colleagues said, read on.
1. Drug companies are facing pressure to control costs all around the world
Outside the United States as well as inside the United States, “pressure on health care budgets continues to constrain reimbursement as well as access for many of our medicines,” Lechleiter said.
2. Competition from other drug companies has stiffened
In recent weeks, Gilead and AbbVie have made headlines by competing for U.S. pharmacy benefits managers’ blessing with high-priced drugs for hepatitis C.
See also: New hepatitis drug costs $1,000 per pill
Lechleiter said he also sees competition stiffening in the market for cancer drugs and the market for diabetes drugs.
“We have sometimes found ourselves falling behind the competition in the progression of key molecules,” Lechleiter said. Lechleiter said Lilly will try to give more support to a smaller number of research projects.
3. Lilly sees the evolution of PPACA as one of its top five environmental challenges
The company ranks PPACA as the second challenge on the list, and the uncertain global economy as the top challenge.
The third challenge listed is “budget pressures affecting pricing, reimbursement and access,” and the fourth is “customers demanding greater value.”
4. Lilly thinks PPACA will add $100 million to its 2015 operating expenses of $11.3 billion to $11.8 billion
PPACA is set to impose a fee on sellers of prescription drugs that’s similar to the fee the law is set to impose on health insurers.
5. Lilly expects to generate about $20.3 billion to $20.8 billion in revenue, but it expects PPACA to cut that total revenue by about $400 million to $450 million
Lechleiter noted during the conference call that PPACA public exchange plan enrollment has been lower than some had hoped.
Medicaid expansion has had a bigger effect, but Medicaid plans typically get very big discounts from manufacturers, he said.
Given what Lilly has seen so far, “we don’t anticipate a significant positive impact to our sales as a result of the expanded coverage provided, at least not in the near term,” he said. “At a high level, additional sales from covering new lives are likely to be offset by a shift of currently covered lives from plans that have today more favorable access and pricing to plans with less favorable access and pricing.”
Lilly will try to draw policymakers’ attention to the proposition that offering patients access to a wide array of effective preventive medications and treatments is the most cost-effective way of preventing and curing disease, Lechleiter said.
“We want to make sure that, as health care coverage evolves, this is a central tenet of that coverage,” Lechleiter said.
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