Cognizant Position Brief

Life Sciences Implications of the U.S. Affordable Care Act

Executive Summary
Prepare for more customers and increased costs and fees. Balance continuing pressure on margins and earnings with greater transparency and reporting requirements for sales and marketing efforts. Emphasize the proven effectiveness of products and therapies while implementing the new business models necessary for survival in the emerging healthcare ecosystem.

ACAs Upside, Downside

The new provisions will present varying degrees of opportunities and challenges for the key life sciences sectors. Healthcare Reform Provisions Expansion of coverage (incl. individual and employer mandates) Medicaid expansion Closing of Medicare Part D donut hole Establishment of state exchanges Increased Medicaid prescription rebates Industry fees Establishment of comparative effectiveness institute FDA biosimilars pathway Excise tax on medical devices Impact on Life Sciences

Drug Manufacturers

Biotechnology Innovators

Device Manufacturers

Positive (+) and negative (-) impact is conveyed by the the number of pluses or minuses.
Figure 1

Cognizant Position Brief | july 2012

These are the imperatives for the life sciences industry now that the U.S. Supreme Court decision has effectively upheld the Affordable Care Act (ACA). Specific provisions of the ACA will affect drug and device manufacturers and biotechnology companies differently (see Figure 1, previous page). Also, the laws Sunshine and Integrity provisions will require a significant increase in the volume of data collected by life sciences companies as well as shared externally. While these provisions are intended to increase the level of transparency and monitoring across the industry, they will indirectly put a strain on already limited budgets and resources. In our view, organizations across the healthcare and life sciences spectrum must proactively address the following five key business implications. 1) Revenue opportunities coverage expansion. through health

for greater flexibility and reduce fixed costs through virtualized operating models. 3) Impact of comparative research on pricing. effectiveness

At issue: Comparative effectiveness research (CER) will help demonstrate the efficacy of diagnostics, pharmaceuticals, devices and other medical treatments. CER data will be more widely available to patients, providers and payers for making decisions about use and coverage. Stakeholders already have seen altered purchasing and prescribing patterns from physicians and group purchasing organizations. Action steps: Recognize how to leverage CER internally and integrate it into strategic product portfolio plans. Assess people, process and technology to ensure necessary capabilities exist for CER adoption.

4) Compliance requirements grow. At issue: Life sciences companies will likely see use of their products increase as the ACA opens access to private health insurance or Medicaid coverage to more than 30 million currently uninsured individuals and increases prescription drug coverage. Action steps: Assess product portfolios for wellness, preventive care and chronic disease management offerings emphasized under the ACA. Develop new product channels, marketing strategies and education efforts targeted to individual consumers. Evaluate the financial impact of typically low Medicaid reimbursement rates.

2) Continued and growing earnings pressure.

At issue: While potential customer bases grow, margins will thin and earnings pressure will increase through the ACAs emphasis on greater operating efficiencies and reduced costs. ACA cost containment provisions directly affecting life sciences include increased Medicaid drug rebates, the closing of the Medicare Part D donut hole and new annual fees and taxes for life sciences companies. Action steps: Retool clinical and commercial operations for greater efficiency and effectiveness to reduce costs, improve margins and fund innovation. Evaluate opportunities

At issue: Increased reporting requirements include sunshine provisions that detail financial relationships between manufacturers of covered products under government programs with physicians and other healthcare entities; enhanced penalty and fraud sentencing guidelines; and increased monitoring and reporting requirements. Action steps: An integrated approach that includes policy, process and technology interventions provides a foundation to comply with sunshine provisions. While the burden on data collection and reporting increases, companies can leverage their investments in transparency programs to increase the quality of business interactions with healthcare professionals (HCPs) and healthcare organizations (HCOs). business models

5) Traditional industry nearing obsolescence.

At issue: The ACA hastens the emergence of a new healthcare ecosystem focused on wellness, outcomes and quality, plus the empowerment of consumers/patients and payers instead of products and physicians. Action steps: The inevitable transformation across all segments of the U.S. healthcare industry will recast the life sciences industry

Cognizant Position Brief

landscape. To survive and grow, companies need to overcome structural shifts and adopt alternate operating models that emphasize new business priorities. Aggressive Therapy As with much major legislation, the ACA is likely to be a living document, subject to changes and adaptations. That said, the ACA alone is not driving the evolving healthcare ecosystem. Other powerful transformative forces, from disruptive technologies to virtualization, also are reshaping the industry. Life sciences companies, therefore need to: Refocus marketing and consumer education programs to align with the needs of individual customers.

Review sales and marketing strategies to address the impact of a growing customer base and additional taxes. Increase operational efficiency and product effectiveness to address earnings pressures. Focus on preventive care and align R&D to develop drugs and vaccines that prevent diseases.

Dealing with the immediate realities outlined above will position life sciences companies to perform well in the evolving health ecosystem, regardless of the final letter of the law.

For more information and insights about the specific opportunities and challenges surrounding ACA, please contact us at inquiry@ cognizant.com.

Credits and Caveat

This policy brief conveys a point of view written by individuals within Cognizants Life Sciences Consulting Practice and does not necessarily represent a legal interpretation of U.S. law. It is not intended to be, and is not a substitute for, legal advice and should not be relied upon as such.

About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the worlds leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50 delivery centers worldwide and approximately 140,500 employees as of March 31, 2012, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at www.cognizant.com for more information.

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