Consultancy firm PricewaterhouseCoopers has issued a report on the top 10 business issues for the pharmaceutical and other healthcare industries in 2006, headlined by the impact the Medicare Prescription Drug Benefit legislation will have in the USA.

This bill, which went into effect on January 1, will inflate Medicare’s share of US prescription drug spending from just 2% in 2005 to a hefty 28% this year, according to PwC's Health research Institute, creating a powerful single purchaser of drugs that will be able to negotiate strongly on price.

This could ultimately affect the profitability of health plans, pharmacy benefit managers and drug manufacturers, according to the report. Programmes that fail to attract enough subscribers are likely to see premium hikes, and the US Congress could rein in spending if Medicare costs continue to increase.

Meanwhile, hospitals in the USA will have to tackle the problem of care and coverage of the uninsured, as more and more Americans drop health insurance coverage. A few payers have begun to collaborate on pilot programmes to develop low-cost health insurance coverage, but hospitals will need to develop a way of handling uninsured patients that does not cripple the financially or lay them open to regulatory problems or loss of reputation.

“The simple days of $10 co-pays will become a distant memory for hundreds of thousands of Americans with high-deductible health plans and Health Savings Accounts,” according to PwC. More than three-quarters of large employers believe they can cut healthcare costs by asking their employees to pay a greater share of those costs.

For the pharmaceutical industry, it suggests, companies may need to examine their product portfolios as consumers become increasingly price-sensitive and comparison-shop for generic drugs and other alternatives.

Patient safety

Unsurprisingly in the wake of the fallout following the withdrawal of Merck & Co’s painkiller Vioxx (rofecoxib) over the course of 2005, this year will see an increased focus on patient safety, says PwC.

Legislation passed last year has removed some of the fear of liability that has kept medical errors from being reported, and laid the foundations for a national database of non-identifiable patient safety data that should improve monitoring. In 2006, the report expects greater emphasis on the use of information technology to improve safety by reducing medical errors and improve tracking and reporting of safety and quality standards.

Annual investments in healthcare IT are expected to nearly double to approximately 5% of revenue from an average of 2%-3% percent now.

Diminishing drug pipeline

The report also raises the often-debated topic of declining R&D productivity in the pharmaceutical industry. With the cost of drug development in excess of $800 million, pharmaceutical manufacturers are under pressure from stakeholders to produce even as their margins erode.

Meanwhile, patent expiries could further decrease revenue by up to 60%, says the report, while growing competition from generic drugs, production of cheap counterfeit drugs from markets such as China and India and the emergence of China as a low-cost manufacturing base are exacerbating the problem.

In 2006, says PwC, the pharmaceutical industry will be focused on boosting R&D productivity and cutting costs and many drug companies will boost their efforts to form strategic alliances and joint ventures with biotech firms as a source for new products.

Other issues highlighted by the report include:

  • Wellness and obesity: Consumers who pay for more of the direct cost of their healthcare have an increased incentive to manage their health and lifestyle. PwC expects a significant increase in voluntary or even mandatory health promotion and wellness initiatives, and there will be a growing market for drugs, treatments and services oriented toward wellness and prevention.
  • Pay for performance: To win financial bonuses for quality, hospitals and physicians will need to work together to change behavior and measure their clinical performance against agreed standards, while pharmaceutical and life sciences companies will have to adopt greater vigilance in product safety from research through market adoption, with the help of IT.
  • Report card fever: there will be increasing demand for more transparent

    information about pricing, and health organizations will need to develop transparent reporting practices for heir prices, error rates and safety standards.

  • Technology backbone: Significant progress will be made in 2006 by government, industry coalitions and banks to build a technology infrastructure to improve claims processing, create electronic medical records, reduce medical errors and track performance.
  • Labour shortages: the report found that healthcare executives rank staff shortages and training as the top problem facing healthcare delivery. Solutions could include increased use of automation for administrative functions, outsourcing, subsidised training, aggressive recruitment and retention, as well as redefining staff>