The June 28, 2012 U.S. Supreme Court decision upholding the Patient Protection and Affordable Care Act (“Act”) impacts the life sciences industry in a number of ways, including impacts on innovation and compliance initiatives by medical device, pharmaceutical, and biotechnology companies.

Innovation

A number of provisions in the Act provide incentives and resources for product innovation.  First, it is expected that more than 30 million Americans will obtain health care coverage on account of the Act.  A bigger pool of Americans with health coverage to pay for treatment will yield growth in pharmaceutical sales and, perhaps, the ability to charge higher drug prices, which, in turn, could spur innovation.  In addition, the Act created the Therapeutic Discovery Project Program, through which $1 billion in new therapeutic discovery project grants and tax credits will be awarded.  In 2010, 2,923 companies specializing in biotechnology and medical research in 47 states and the District of Columbia received awards under the grant program.  Firms can opt to receive either a grant or a tax credit under the program, which allows both profitable companies and start-ups that are not yet profitable to benefit.  A third measure in the Act likely to have a positive impact on innovation is a provision that gives biotech companies a dozen years of exclusive rights to the data underpinning their products.

On the other hand, the ruling leaves intact a 2.3% excise tax on medical devices, which is estimated to cost the industry $20 billion over the next 10 years, and which manufacturers fear will burden innovation.  On the other hand, some believe that, as in the case of pharmaceutical manufacturers, expansion of health care coverage will increase the demand for medical devices and offset the effect of the tax.

The Supreme Court ruling affects not only the speed but also the direction of life sciences product innovation.  PricewaterhouseCoopers[1]has identified five broad pillars of medical technology innovation: financial incentives (such as reimbursement for adoption of new technologies), resources for innovation (such as academic medical centers), a supportive regulatory system, demanding and price-insensitive patients, and a supportive investment community of venture capitalists and other investors.  Various provisions in the Act promote the development of more cost-effective ways of delivering care, including a measure that calls for more real-world evidence of a new drug’s superiority over other treatments in order to qualify for reimbursement.  Such provisions may spur more definitive product innovation, as opposed to production of “me too” drugs and new devices that make only modest improvements to existing products.

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Robyn Shapiro

Partner at Drinker Biddle & Reath LLP

Robyn S. Shapiro is a partner in the Health Law Practice Group. She has significant experience in representing clients with respect to bioethics issues, medical staff matters, health information privacy, informed consent, regulatory and licensing matters, human subjects research compliance and employment and other business issues. Robyn's past positions as Ursula Von der Ruhr professor of bioethics and director of the Bioethics Center at the Medical College of Wisconsin complement her wide-ranging experience in health law.

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