America's health law in the balance

Obamacare is "on life support". That was the verdict of some legal experts last week after America's Supreme Court put President Barack Obama's health care reforms under the microscope.

The Affordable Care Act has so far cost drug makers, including Britain's AstraZeneca and GlaxoSmithKline, millions of dollars, but there are now fears that the law is in danger of being struck down.

Over three days, justices heard arguments for and against the constitutionality of the Affordable Care Act's linchpin provision that requires all Americans to buy health insurance. Sceptical questioning by the judges prompted some observers to caution that America's highest court could scupper the law when it announces its decision in June.

Whatever the court's verdict, health care experts expect Obama's reforms to survive in some form, but uncertainty over ObamaCare's future is uncomfortable for drug makers. Their bottom line has already been hurt by the law, as they have had to contribute through an excise tax on the industry and sales have been hit by giving bigger price rebates to patients in the Medicaid insurance programme. Over the past two years, a combination of European austerity measures and US health reform have cost GlaxoSmithKline more than £650 million. AstraZeneca calculates that US reforms have cost it more than $1 billion (£630 million) to date.

When the Act, which aims to extend health care coverage to more than 30 million Americans, became law in 2010, observers suggested that it could be beneficial to the pharmaceutical industry. More patients would be covered by prescription drugs, paving the way for higher sales, and it extended the patent protection on expensive "biologic therapies".

But there is a sense that any benefits are still a long way off. David Brennan, Astra chief executive, said at the company's annual results earlier this year: "It's cost us a lot of money in the last two years on our bottom line in the US to pay for something that hasn't happened yet."

Although the future of ObamaCare remains in the balance, some form of overhaul to America's $2.6?trillion health care system is seen as inevitable. "The cost trajectory in the US is unsustainable," said Chris Bowe, US health care analyst at Informa. "No matter what happens, health care reform is here to stay in some shape."

Whether ObamaCare survives intact or not, drug makers are adapting to a system that is shifting to get more value for money as pressures build from factors such as an ageing population. Jack Bailey, Glaxo's head of public policy in America, said that before the Act, market forces had been driving change in the US, with more focus on the value of drugs. "All this is critical because, frankly, the system, the way it's financed and health care is delivered, is unsustainable," he added.

"We know our system can get better," said Bailey, and he believes drug makers can be part of the solution.

"We know we've got to deliver more value for every dollar spent in the US health care system," he added.

Glaxo has taken steps to adapt its approach in the US. Incentives for sales representatives have been changed so that rather than being rewarded for the volumes of drugs sold, factors such as doctors' feedback are used instead. Astra has also changed its sales force.

Glaxo is conscious too of the need to demonstrate that its products provide value for money. "We have changed a lot of how we go about developing our assets to make sure we have that evidence that will convince US payers that this is good, life science innovation that will benefit their population both clinically and economically," said Bailey.

Although the climate in the US is challenging, it remains a critical market for drug makers. While there has been an increasing focus on emerging economies, such as China, Bowe believes that "the narrative is too easy that the emerging markets are going to be the saviour for growth in the industry".

He said: "The industry has to revise its business model to make the US profitable, and sustainably profitable, because it is still going to be the overwhelming largest spender in health care in the world and that's not going to change any time soon."

Glaxo might have shifted its focus away from "white pills in Western markets", but Bailey added that "the US presence will also continue to be there. This is a market that rewards innovation, it's still the biggest market there is."

With the influence of America's $334 billion pharmaceutical market not about to wane any time soon and pressure on spending building, fingers are therefore crossed for a swift resolution to rehabilitating America's health care system.

"The faster we could move overall to continue to drive towards a system that gets better value for every health care dollar, the better," said Bailey. "Speed is on everybody's mind."