‘It exemplifies the very worst results of partisan politics. There is no doubt that we will have to revisit this bill soon and correct it,” said Congressman Rush Holt (D-NJ), speaking of the Medicare Modernization Act at a Plainsboro town meeting last month. The White House plan to slash $36 billion from the Medicare budget over the next five years found little support even among G.O.P. leaders. But now the major pharmaceutical and life science firms are expressing concern about Part D of this act, which includes a prescription drug manifest for everyone over age 65.

While the stated intent of Part D, enacted January 1 is to provide greater prescription drug coverage for seniors, most companies are wondering how this will affect everything from pricing to the types of drugs researched. The New Jersey Technology Council examines the issues in “The New Medicare Act and its Effect on Life Science Companies,” a panel discussion taking place on Tuesday, March 7, at 4 p.m. at the Somerset Corporate Center in Bridgewater. Cost: $70. Call 856-987-9700 or visit www.njtc.com.

Panelists include Karen Sanzo, a Washington, D.C.-based attorney with Morgan Lewis’ FDA/healthcare regulations practice group; Christopher White, also a Morgan Lewis partner; Thomas Forrester, associate general counsel, Sanofi Aventis pharmaceutical company in Bridgewater; Michael Breggar, life sciences and healthcare director for global consultants Deloitte & Touche in Philadelphia; and Cornell Stamoran, vice president of strategic intelligence and planning for Ohio-based Cardinal Health.

Sanzo has her life science clients through the Byzantine maze of FDA and governmental regulations for 15 years. She attended Duke University, graduating in l979 with a bachelor’s degree in political science. She then obtained her law degree at Emory University followed by a masters in FDA regulations from Washington University. As a Morgan Lewis partner, her expertise and experience have taught her to “never be too sure of what any new legislation means.”

“No companies I know are really expressing strong opposition to this new act yet,” says Sanzo, “but most of us have real concerns as to how the new system will work.”

The donut hole. As of January 1 Medicare’s prescription drug manifest provides all seniors some prescription drug coverage. Depending on the selected plan and personal income, seniors pay a sliding scale of co-payment for drugs of up to around $2,000 annually. A disaster relief program kicks in when the individual’s annual drug tally exceeds $5,000. Between those two figures is what critics have termed the “doughnut hole,” which must be either paid out of pocket or picked up by some secondary insurance.

Individuals seeking more information may visit www.medicare.gov or call 1-800-medicare. Everyone 65 or older should receive the booklet “Medicare and You” explaining the various plans.

Government as dealer. As Medicare gets into the drug business, the U.S. government will become the largest buyer of prescription medicine. Last year the average American between age 25 and 34 spent a total of $264 on healthcare medicines and drugs. For those age over 65 the cost jumped to $1,032; by age 75, $1,207.

Clearly seniors, on average, spend far more than their children and grandchildren on prescription drugs, and Medicare will be picking up a substantial percentage of the tab for most of these expenditures. But the government is only the dealer here. Opposing national healthcare coverage, this administration has shifted these Medicare payment responsibilities off onto existing private carriers such as Blue Cross/Blue Shield. For the life sciences, this means a whole new way of doing business.

Fitting the formulae. One would be hard pressed to find any physician enthralled with the formulized fiats of the HMO-style of reimbursement. When payments for doctors’ services is controlled by HMO insurers, they are critically segmented and the cost of each part is doled out slowly and grudgingly. Fee scales are based on complicated calculations involving the region, the number of doctors, average length of hospital stays, and more. In the end, many physicians complain that they are repaid by these insurers far below actual procedural cost.

Now pharmaceutical companies face a similar situation, where they will be paid according to schedules set by health management organizations. “One thing is clear,” says Sanzo. “The life sciences industry is going to have to negotiate with the insurance companies for their prices.”

Pharmaceutical firms of all sizes are wondering whether they should bundle all of their products into one offering, or split them and sell individual drugs to different healthcare providers’ plans. What kind of drugs can a manufacturer produce that will fit profitably into the provider’s price structure? Will the profit-driven HMOs control what diseases get researched?

Who’s your buyer? Pharmaceutical marketers will doubtless face the biggest jolt. Rather than marketing to doctors, the drug makers will be forced to sell to the insurers. Companies will have to sell the idea that theirs is the best drug for a given symptom — that it is worthy to make the HMO’s list.

Critics of the new Medicare Act fear that this is yet one more case of medical decisions slipping into the hands of entities interested only in the bottom line. Sanzo says that doctors will still get all the information about the latest medications, but that they may also have a sword of denied reimbursement hanging over their prescription pads. A positive may be the possibility of increased volume as Medicare reimbursement increases.

Whatever the result for consumers, there is no doubt that the need for Medicare will expand exponentially. By 2020 Medicare payments are expected to increase $50 billion annually. The way in which they are disbursed will have a major effect on the entire life sciences industry.

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