Changes to Medicare Part D Threaten Indiana Jobs and Life Sciences Economy

As we travel the state, there is a consistent message we hear about the need to grow the economy and add jobs. Despite the national economic downturn, employment in Indiana’s bioscience industry has continued to grow, increasing by 17.9% between 2006 and 2009 according to an economic report from BioCrossroads. What’s more, the report shows these employees are earning nearly $43,000 more on average than other private sector workers.

Indiana has a lot to lose if bad policy choices in Washington adversely impact the life sciences industry. In a misguided attempt to squeeze cost savings out of the Medicare program nationwide, some in the nation’s capital are advocating for a system of price controls that would cripple the biopharmaceutical industry, costing thousands of jobs and derailing research into promising new treatments that could extend seniors’ lives and improve quality of life.

According to the BioCrossroads, there are roughly 18,000 Hoosiers directly employed by the pharmaceutical industry in Indiana. With another 46,000 jobs supported by the sector indirectly, the economic impact on the state is huge – totaling $44 billion.

These jobs are important to our cities and towns across Indiana. The reality is they’re threatened by a proposed plan that would alter the financing of Medicare’s prescription drug component, Part D, by requiring pharmaceutical manufacturers to offer a mandatory “rebate” to the government on the price they charge for their products. The proposal would turn Medicare’s prescription drug financing into a copy of Medicaid’s failed formula. Mandatory Medicare prescription drug “rebates” would instantly undermine the principle that has made Part D so successful.

Part D works because it encourages competition. Participation is voluntary and enrollees choose the private insurance plan they like best, forcing insurers to compete on quality and price. Plans negotiate discounts with manufacturers and pass on savings to enrollees.

The simple beauty of market competition has yielded impressive results. When enacted in 2003, the Congressional Budget Office (CBO) estimated that by 2011 average monthly premiums would be $53. The actual average this year is $30. And it isn’t just Medicare recipients who are saving money. The CBO calculates that total federal costs for Part D from 2004 to 2013 will be 46 percent lower than initially projected.

Ignoring the successes of Part D and instituting Medicaid-like rebates will have destructive consequences not only for enrollees, but also for the biopharmaceutical industry here in Indiana and across the country. The CBO estimates Medicare rebates could end up costing drug companies $20 billion in annual revenue.  This dramatic revenue squeeze jeopardizes 260,000 jobs nationwide, according to a study by Battelle. Not only that, it is likely to stifle the drug innovation that is so important to Indiana’s economy.

The BioCrossroads report discovered from 2004 to 2009 more than 1,900 life sciences-related patents were issued to Indiana assignees, with 378 patents awarded in 2009. The investment in creating new patents means more jobs and revenue for Hoosiers.

Developing new drug treatments is a costly business. On average, research and development of a new prescription drug costs $1 billion; only a third of these new treatments will ever earn back that investment. Pharmaceutical companies will be reluctant to undertake such risks if they face further uncertainties about recouping their investments due to government price controls.

Indiana’s unemployment rate is 8.3 percent, still too high but outperforming the national rate. The success of the biopharmaceutical sector here is one important reason why. Our legislators in Washington need to build on our success and create an environment to increase job growth. Saying no to a bad proposal for price controls on Medicare Part D is critical to ensuring the life sciences industry will continue to help us out of this economic downturn.

Kristin Jones is the president and CEO of Indiana Health Industry Forum. Matt Greller is the executive director of the Indiana Association of Cities and Towns

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