Health Care Reform - After more than a year's worth of work and a significant expenditure of political capital, Democrats passed health care reform legislation in March. On March 21, 2010, the House of Representatives passed the Patient Protection and Affordable Care Act (PPACA; H.R. 3590/Public Law No: 111-148 ), which the Senate had passed in identical form on December 24, 2009, prior to the election of Senator Scott Brown (R-MA). President Obama signed PPACA into law on March 23, 2010. Also on March 21, the House passed a separate bill that included changes to PPACA: the Health Care and Education Reconciliation Act of 2010 (H.R. 4872/Public Law No: 111-152). The Senate passed a slightly revised version of the Reconciliation bill on March 25, 2010, and the House passed the bill as amended later the same day. The President signed the Reconciliation Act into law on March 30, 2010. The Congressional Budget Office (CBO) scored the final health care reform package at $940 billion, with expected savings of $138 billion in the first decade. Under the legislation, CBO estimates that 94 percent of Americans will have health insurance by 2020. PPACA and the Reconciliation Act make widespread changes throughout the health care industry. Key changes for drug and device manufacturers include the following:

  • Pharmaceutical Tax. Starting in 2011, brand pharmaceutical companies will pay an annual fee. Companies will be required to pay their share of an aggregate amount imposed on the industry: for 2011, $2.5 billion; for 2012, $2.8 billion; for 2013, $2.8 billion; for 2014, $3.0 billion; for 2015, $3.0 billion; for 2016, $3.0 billion; for 2017, $4.0 billion; for 2018, $4.1 billion; and for 2019 and thereafter, $2.8 billion.  
  • Device Tax. An excise tax of 2.3 percent is imposed on the price of medical devices, effective for medical device sales after December 31, 2012. Eyeglasses, contact lenses hearing aids, and any other medical device determined by the Secretary to be of a type that is generally purchased by the general public at retail for individual use are exempt from the tax.  
  • Physician Sunshine. Beginning on March 31, 2013, any covered drug, device, biological or medical supply manufacturer that provides a payment or other transfer of value to a physician or teaching hospital must submit information to the Secretary, including the name of the recipient, the amount of the payment or other transfer of value and the nature of the payment or other transfer. Information reported to the Secretary will be made available to the public. Noncompliance by the manufacturer or group purchasing organization would result in civil money penalties of not less than $1,000 and not more than $10,000 for each violation. State law would be preempted, except that states could impose additional requirements. A separate provision requires prescription drug sample transparency/reporting.  
  • Donut Hole. The legislation closes the Medicare Part D "donut hole" by 2020, when beneficiaries would be responsible for only 25 percent of both brand and generic drug costs. PPACA requires a 50 percent discount form brand manufacturers on drugs dispensed to beneficiaries in the donut hole, starting in 2011. In addition, the Reconciliation Act provides for phased-in government subsidies to pay for 25 percent of brand drug costs by 2020. Phased-in government subsidies will cover 75 percent of the costs of generic drugs in the donut hole by 2020. In 2010, beneficiaries who enter the donut hole will receive a $250 rebate.  
  • Grants. The legislation provides for research grants to support drug development through the Cures Acceleration Network (CAN).  
  • Drug Pricing. A number of additional provisions will impact drug payments. For example, the legislation increases and expands applicability of Medicaid rebates, expands the 340B drug discount program to additional covered entities and makes changes to the calculation of Average Manufacturer Price (AMP).  
  • Employer Issues. Numerous requirements relevant to employers, including a "pay-or-play" requirement for employers with more than 50 full time employees and an auto-enrollment requirement for employers with more than 200 employees.