Pharma, insurers see bigger hit with House bill

WASHINGTON Thu Oct 29, 2009 6:26pm EDT

WASHINGTON (Reuters) - Drugmakers would take a bigger hit under healthcare legislation unveiled in the U.S. House of Representatives on Thursday, while insurers would face mandatory rebates and the loss of their antitrust exemption.

Despite a carefully crafted deal with the White House and senators earlier this year, House lawmakers want pharmaceutical companies to pay more through rebates for Medicare patients also enrolled in the government's Medicaid program for the poor.

And while they also want to close the gap in drug coverage for elderly and disabled Medicare patients -- a move that could get more people to take their medications -- House leaders would require the nation's health secretary to negotiate lower drug prices under the program.

Insurers, already expected to take the biggest whack under any health reform measure, saw most of their worries realized with the House bill eliminating the industry's exemption to antitrust laws and targeting their profits.

The measure forces insurance companies to give customers rebates if less than 85 percent of enrollees' fees is spent on actual health care.

The much-anticipated public option also could give insurers stiff competition by keeping prices down with reimbursements potentially as low as Medicare rates as well as requiring providers to opt out against accepting patients with the public plan coverage. The bill also allows for a cooperative insurance exchange for consumers to compare plans.

While the drug and insurance sectors would take a hit, most healthcare companies also would see their income dented, especially when it comes to government reimbursement.

"Pretty much for every industry, provisions are worse in the House bill than in the Senate," said Ipsita Smolinski, an analyst for investors at Capitol Street.

At the same time, the bill would increase the number of Americans with insurance by 36 million, the Congressional Budget Office estimated. That would bring new customers for drugmakers, insurers and other providers of health services and products.

The broader S&P Health Care Sector index .GSPA closed up nearly 1 percent, trailing the 2.25 percent increase for the overall market. Health insurer stocks ended sharply higher on Thursday, helped in part by Aetna Inc's (AET.N) encouraging third-quarter earnings report.

Drugmakers and insurers are expected to fight back against the provisions, especially as Senate leaders prepare to release their own bill as soon as next week.

"Unfortunately, some people are unrealistic in the expectations of what our industry can contribute to healthcare reform without triggering catastrophic job losses and driving critically important (research and development) overseas," said Ken Johnson, a spokesman for the Pharmaceutical Research and Manufacturers of America.

America's Health Insurance Plans President Karen Ignagni said that the government public insurance option "would cause millions of people to lose their current coverage" while other consumers could see benefit cuts or higher costs.

For hospitals, the picture appeared somewhat murkier. A greater number of insured patients would help offset losses from mandatory care hospitals provide in emergency rooms, but they would also face lower government reimbursement and possible higher device costs.

Clinical laboratories, hospice providers and other sectors will see their reimbursements cut based on a rate that the American Clinical Laboratory Association said could be between about 1.1 and 1.4 percent annually.

Still, some sectors emerged relatively unscathed, most notably biotech drug companies that were able to maintain a 12-year period of protection from generic rivals.

Devicemakers, which had seen a $4 billion-a-year tax in a Senate version of the bill, were able persuade House lawmakers to cut the tax in half and delay it back until 2013.

That delay gives device companies time not only to prepare for it but also "where possible, attempt to pass on at least a portion of the tax through price increases," J.P. Morgan analyst Michael Weinstein said in a note.

(Additional reporting by Kim Dixon and Lewis Krauskopf, editing by Matthew Lewis)

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