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Changing Role of Medicare and its Impact on Pharmaceutical Industry
Frost & Sullivan, July 2004
Pharmaceutical Companies Need to Resourcefully Incorporate Medicare Law in their Business Strategies
Many healthcare industry segments including pharmacy benefit managers (PBM) and private insurance providers are likely to be affected by the Medicare Prescription Drug Law. They will have to draw on all their resourcefulness to incorporate features of this law into their current business strategy, as they have to alter and leverage regulatory points with each process. This could put added pressure on drug manufacturers to comply with new codes and necessitate review of their pricing procedures. Pharmaceutical companies are expected to face a threat from popularity of generic drugs and imminent patent expiration of several branded ones. All this will require a new business model that can create a ‘win-win’ scenario for all parties - including Medicare beneficiaries.
This strategic analysis service studies the changing role of Medicare and its impact on pharmaceutical companies besides examining the Medicare Prescription Drug Law. It also outlines the need for changes in business strategies to deal with the amendment in Medicare laws and provides the advantages of Medicare to beneficiaries, its influence on pharmaceuticals’ revenue, and the increase in Medicare spending.
Mandatory Cost Sharing Under the Medicare Law Helps Pharmaceutical Companies Sustain Profit Margins
With a rapidly growing senior population, there is a high need for life-saving drugs. Improvements in insurance coverage of prescription drugs for Medicare beneficiaries are expected to increase drug utilization in future. Medicare spending is likely to increase as more beneficiaries enroll in the program following the new prescription drug law, says the analyst. Medicare spending is estimated to rise from nearly $280.0 million in 2003 to more than $525.0 million in 2010.
Prescription drug coverage for Medicare beneficiaries is expected to be key in increasing Medicare enrollees, boosting Medicare spending. If this trend continues, it is projected to help pharmaceutical companies and other segments of the industry retain their profit margins. The financial situation of many companies hinges on the Medicare law and on how best it is incorporated in their business models.
Persistence with Drug Innovation despite Change in Medicare Law Helps Capture Market Segments
Price controls on drugs - prompted by the Medicare law - can impede innovation and this may deprive patients of access to breakthrough therapies or life-saving drugs. Pharmaceuticals companies that synchronize their business strategy with the new law and communicate the change appropriately are most likely to retain existing markets. By not using the Medicare law as an excuse to delay drug discovery, but by using it as a stimulant to innovation, pharmaceuticals companies can achieve greater market shares and revenue.
Pioneering better technologies can help companies obtain rebates from the government. Innovative breakthrough products for seniors in segments such as rheumatoid arthritis and Alzheimer's disease can save millions of dollars in prescription drugs, notes the analyst. Bringing innovative products to market can open new sectors and spur creation of completely new market segments.
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