NVCA Today

In March, President Obama signed into law historic healthcare reform legislation, the Patient Protection and Affordable Care Act, Pub. L. No. 111-148. While NVCA supports many of the provisions, the new law delivers a mixed bag of benefits and challenges for our members and their portfolio companies. NVCA is in the process of finalizing a white paper summarizing the impact the law will have on medical innovation.

Overall, the new law will significantly expand access to health care providers and services by adding over 30 million newly insured individuals to the health care market. A number of the law’s provisions will likely help spur innovation, particularly in the biotechnology space, and encourage future economic and job growth. These include the FDA pathway and 12-year data exclusivity for biosimilars, the Cures Acceleration Network, the Therapeutic Discovery Project Tax Credit, and a molecular diagnostic payment demonstration project.

The law also contains some provisions that NVCA believes could potentially stifle innovation and drive investment away from young start-up companies. These include the across-the-board excise tax on medical devices and the Medicare capital gains tax. Both of these increase the tax burden on some of the most risk-laden yet potentially beneficial innovations and the companies that generate them.

Some elements, such as the increased emphasis on comparative effectiveness, or CER, have the potential to improve patient outcomes and increase the efficiency with which our system delivers them. However, if not undertaken with the proper focus and context, CER may also create undue hurdles for innovative new drugs and technologies. The Independent Payment Advisory Board (IPAB) offers similar potential for both positive and negative impacts, but concerns NVCA because of its singular focus on curbing “excess cost growth.”

Below are further details on key provisions.

• Exclusivity for Follow-on Biologics - The data exclusivity period for biologic innovation will be 12 years. Championed by Rep. Anna Eshoo, this provision helps ensure that the risk takers and innovators are adequately rewarded for their time and investment in groundbreaking medical innovation.
• Cures Acceleration Network (CAN) - Championed by Senator Arlen Specter, this provision provides a $500 million authorization for a new operating enterprise within NIH that will fund grants focused on "high need cures." CAN will: 1) operate based on recommendations from a widely representative board, including two venture capitalists; 2) reduce the barriers between lab discoveries and clinical trials for new therapies; and 3) facilitate FDA review for the high need cures funded by CAN. The $500 million will still need to be appropriated by Congress.
• Therapeutic Discovery Project Tax Credit - Championed by Senator Menendez, this provision allows companies to claim up to $25 million for certain qualified R&D expenses.
• Comparative Effectiveness Research (CER) - Establishes an Independent Institute to assist patients, clinicians, purchasers, and policy makers in making health decisions by conducting research that would compare the clinical effectiveness, risk, and benefits of two or more medical treatments or services. The Institute will appoint advisory panels which will include industry, patients, and consumer groups. CER reaffirms the "reasonable and necessary" standard of CMS.
• Medical Device Company Excise Tax - The provision imposes a 2.3% excise tax at the point of sale for every medical device company. There is no small company carve out. The tax is effective for taxable years after December 31, 2013. The tax will be assessed on all FDA-approved devices except for eyeglasses, contact lenses, hearing aids, and other devices that are sold to the general public at retail stores.
• Medicare Commission - This newly formed commission is tasked with reducing excess cost growth and improving the quality of care for Medicare beneficiaries. NVCA believes this type of Commission could short-sightedly stifle the introduction of medical innovations into the healthcare system.
• Medicare Capital Gains Tax - This provision calls for a 3.8% Medicare tax on unearned income, which will impact the capital gains tax rate. The new tax is effective for taxable years after December 31, 2012. The NVCA will continue to advocate for a meaningful differential between capital gains and ordinary income.