In any other year, healthcare and the $2.2 trillion Americans spend on it each year, might have been the signature issue of the 2008 election. But a funny thing -- several, actually -- happened on the way to the voting booth: the worst financial crisis since the Great Depression, mounting evidence of perilous climate change, the military overextended in two wars.

Healthcare still got its play, of course. Talk this year usually centered on the high costs to average citizens and government coffers. Medical bills cause more than half of personal bankruptcies. But a host of other related problems were also on the table: the nurturing of today's basic science, the extent and wisdom of safety regulations and the health industry's power to shape our public policy.

In the following story, we break the healthcare world into five pieces and examine the twin effects of President-elect Barack Obama's and the Democratic Party's surge on Nov. 4 and the looming recession with its as-yet unknown bottom.

First, we look at sources of funding for the early stages of medical research -- the National Institutes of Health and venture capitalists -- and lay out their concerns for the next couple of years. Then we examine the fate of the struggling pharmaceuticals industry, especially Big Pharma, which, after years of getting its way in Washington might now face more opposition. Next is a look at Obama's chance for major changes. Then comes the Food and Drug Administration. Woefully underfunded, it stands to get a lot more cash. Finally, there is the Supreme Court's take on healthcare, with a spotlight on the current Wyeth v. Levine, the so-called pre-emption case, in which a guitarist whose arm was amputated after an improper injection of Wyeth's anti-nausea drug is suing the drugmaker. The case could have a profound effect on the drug industry and beyond. How will the justices rule -- and how much will the new president be able to reshape the court?

THE EARLY STAGES

Where will the money come from? Like thousands of scientists-turned-entrepreneurs, Erik Schwiebert asks that question every day. The former University of Alabama at Birmingham researcher is scrambling to push his startup, Discovery BioMed Inc. of Birmingham, past the seed-funding stage even as investors and government funders, two potential sources, face a fierce economic headwind.

"I can't imagine starting up right now what we started a year or two ago," says Schwiebert, who says he has raised $1.2 million from a local venture fund and with only a year of operations behind him hopes to hit six figures of revenue next quarter.

Like so much biotech research, Schwiebert's work -- genetically tweaking diseased human tissue into "immortalized" cell lines that can survive in a lab and be used as a test bed for drugs -- has also benefited from government funding. In Schwiebert's case, it's a $100,000 small-business grant for his startup, with more perhaps to come.

After the nearly $70 billion in annual industry research, the next highest source of funding comes from the National Institutes of Health, which makes up 75% of the government's health research budget. But as the industry continues to pare research, NIH becomes even more crucial in feeding the earliest exploratory work. Most NIH money goes to its own labs, to academia and to other nonprofit research, though some is funneled into small-business grants such as Discovery BioMed's. That work flows downstream into venture-funded startups and ultimately into drugs, devices and other healthcare products.

After a double-the-budget effort in the mid-1990s, the NIH's budget has been more or less flat since 2003 and now stands at $29 billion. Advocates say it's not enough. Stacie Propst, vice president of policy at Research!America, a well-funded Washington proponent of medical research, estimates U.S. health research spending at $116 billion in 2006 and $122 billion in 2007, 5.5% of the nation's total healthcare outlay.

She wants to see the NIH's budget outpace the cost of inflation, for starters, then get another 3% boost, and she hopes Congress might be amenable to a one-time allocation in a stimulus package. She might get her wish: The Obama campaign pledged to double federal funding over 10 years for key science agencies, including the NIH.

More NIH funding also means more research projects for venture capitalists to choose from, but it's unclear how new tax policies will affect VC enthusiasm. Will an attempt to treat carried interest as earned income blunt the incentive to invest? What about a change in capital gains rates? If they go up, might early-stage investors be granted an exception as a way to encourage innovation?

The campaign's "small business rescue" platform says Obama wants to "eliminate all capital gains taxes on investments made in small and startup businesses." (Attempts to reach Obama economic advisers for comment were unsuccessful.)

A venture lobbyist in Washington is cautiously optimistic. "There's acknowledgment by the Obama team that there's a difference between investing long term and early stage, and investing in established corporations," says National Venture Capital Association president Mark Heesen. A key detail to monitor, says Heesen, is the eventual difference between the capital gains and earned income rates: "If cap gains are 30% and the ordinary rate is 34%, why put your money into a risky biotech? They have to get the tipping point right."

Because of the recession, major tax changes might not be part of the early agenda. For shorter-term help, the extension of the R&D tax credit tucked into October's bailout bill won't help biotech rank and file, since most biotechs don't have revenue. More helpful could be a change in the treatment of net operating losses for which industry group BIO and others are lobbying.

One significant change in the first year will come from the overturn of the Bush-era ban on federal funding for embryonic stem cell research. Once Obama lifts the ban, as expected, federal money could boost the research funds already dedicated by states, particularly California, and private funders.

Schwiebert has dreams of his fee-for-service, customized cell-line business becoming in a few years an owner of a piece of a promising drug -- the Holy Grail for so many biotechs. Until then, Schwiebert is counting on government grants for help and, more generally, a "re-energized" commitment to science under Obama. "Everyone's talking about a huge redistribution of wealth, but it's not a ton of money." -- Alex Lash

THE PHARMA FIGHT

Few companies had a greater stake in the election than pharmaceutical giants, recently plagued by massive layoffs, production problems, patent expirations and nasty stock drops. The Amex Pharmaceuticals Index has plummeted more than 21% so far this year, with stalwarts Pfizer Inc., Merck & Co. and GlaxoSmithKline plc especially hard hit.

Sensing the shift in the political winds, traditionally pro-GOP drug companies donated more than $11 million -- or 49% of their campaign contributions -- to Democrats this year. But Obama may offer little relief to their troubles and in fact may make doing business more difficult. "Basically, he'll be cracking down on the whole waterfront," says Herman Saftlas, a pharmaceutical analyst at Standard & Poor's, about the drug industry.

But major healthcare changes could take a back seat to more pressing issues as the recession deepens. "Given the state of the economy and the political battles required, I doubt whether the Democrats want to take on Big Pharma next year, or even the year after that," says Douglas Hough, associate professor at Johns Hopkins Bloomberg School of Public Health in Baltimore.

Nevertheless, with the Democrats' new mandate and Big Pharma's war chest, expect battles on several fronts.

Obama has promised to increase competition in the drug markets, something the industry has fought for years, such as when the Medicare Part D prescription benefit became law in 2003. Obama wants Americans to have access to safe, lower-priced drugs from other developed countries. Today, pharma companies sell the exact same drugs in Europe and Canada but charge Americans a 67% premium on the medicines.

The next president also wants to prevent drugmakers from paying their generic rivals to stay out of their market. One lucrative example of such practices: in June, Ranbaxy Laboratories Ltd. of India agreed to refrain from entering Pfizer's Lipitor cholesterol drug market until November 2011 in return for a license to Caduet, which is a combination of Lipitor and high blood pressure medicine Norvasc. Damien Conover, an analyst at Morningstar Inc. in Chicago, estimates Pfizer secured more than $9 billion in Lipitor sales through the settlement and Ranbaxy received an exact launch date and a Caduet license. In addition, he writes in a recent report, "we believe the drug companies have learned how to successfully avoid the [Federal Trade Commission]."

Generic versions of biologic medicines, sometimes called bio-similars, are also on the way, though we shouldn't expect biotech copycats in the same volume as traditional generics. But the biggest fight could come when the Obama administration tries to give Medicare, the nation's biggest drug purchaser, the right to negotiate prices, something the agency now cannot do. Obama has said the savings of as much as $30 billion could help improve healthcare coverage and quality. Others question how much money negotiation will really save. "I would argue that the pharmacy benefit managers are already keeping drug prices pretty darn low for Medicare," says Ipsita Smolinski, an analyst at J.P. Morgan Securities Inc.

And there's always the fear, often cited by industry, that reducing prices will blunt the companies' incentive to pour billions of dollars into research. "Any cost savings would come at the expense of pharmaceutical innovation," Michael Tanner of the libertarian Cato Institute wrote in a recent report.

Tanner says with Medicare price negotiation, the industry would reduce R&D spending by as much as $10 billion a year. But even in an unfettered market, the industry has seen the development of innovative drugs slow to a trickle in recent years, a slide that started well before the economic downturn, when Big Pharma began slashing tens of thousands of R&D jobs.

As Big Pharma girds for a fight, it might compensate for its lackluster productivity through acquisition. Attractive targets are struggling for cash and Big Pharma has it: According to a report last month from research firm Datamonitor, the top 20 have an average of $7.5 billion and only 6% debt in proportion to capital. -- Cheryl Meyer

MANAGING THE UNMANAGEABLE

On the campaign trail, Barack Obama and John McCain's plans differed greatly, but the reasons for change were indisputable: Nearly one in six Americans had no insurance last year, according to the Census Bureau, while premiums per family have doubled over the past decade.

Can Obama push through his version of reform? He wants to require insurance for children. Employers would have to provide benefits or pay a fee, the amount of which was a source of contention during the presidential debates. The smallest companies would be exempt, with tax credits for smaller firms. Insurers would be banned from denying coverage. He also wants to create a national insurance exchange to give options to consumers who don't have insurance or don't like their employers' plan.

Independent estimates put the cost of his plan between $1.2 trillion and $1.6 trillion over 10 years.

Senate Finance Committee chairman Max Baucus, D-Mont., released his own comprehensive plan on Nov. 12, signaling that Congress will help push for overhaul sooner rather than later. But some observers think more ambitious elements, such as the insurance exchange, will have to go on the back burner. "I'm not saying [the exchange] is impossible, but right now it's unaffordable," says Phillip Seligman, equity research analyst at Standard & Poor's.

Other components could be tucked into an early economic stimulus package. For starters, the States' Children's Health Insurance Program, or SCHIP, which provides funding to states for health insurance to low-income children, expires March 31, 2009. Congress is expected to extend funding for one or two more years. Last year, President Bush vetoed legislation to strengthen SCHIP, concerned that people in private plans would join the free public program. If Congress not only reauthorizes but expands the program, firms that administer SCHIP such as UnitedHealth Group Inc. of Minnetonka, Minn., Amerigroup Corp. of Virginia Beach, Va., and Centene Corp. of St. Louis, among others, could benefit.

Congress will also likely prevent a 20% cut in doctors' Medicare reimbursements in 2010, as it has every year since 2002, J.P. Morgan's Smolinski predicts in a post-election report.

Another high priority target is Medicare Advantage, an alternative plan that gives patients more doctor choice but costs the government 12% more than it pays for comparable patients with traditional Medicare. Last year, 8.7 million seniors, about 20% of all Medicare beneficiaries, were enrolled in the Advantage plan, according to the Henry J. Kaiser Family Foundation. Created in 1997, the plan lets seniors get Medicare benefits through private providers. The providers receive a set monthly payment from Medicare, and members pay additional premiums for areas not covered by traditional Medicare, such as dental coverage.

Obama and other Democrats have criticized overpayments to providers that stem from a bid system calibrated against a benchmark. Morningstar analyst Matthew Coffina says Congress could slash reimbursements by recalculating benchmark levels and possibly risk-adjustment payment levels.

Medicare Advantage providers such as Humana Inc. of Louisville, Ky., Coventry Health Care Inc. of Bethesda, Md., and WellCare Health Plans Inc. of Tampa, Fla., could see hits in revenues, though it remains to be seen how much of the reimbursement cuts would be passed on to seniors through higher premiums. The sector could also be ripe for M&A. Two major deals this year centered on Medicare Advantage: in August Humana acquired PHP Companies Inc. from Covenant Health for $245 million in cash to triple its Medicare Advantage members in Tennessee, and in February, UnitedHealth bought Las Vegas' Sierra Health Services Inc. for $2.4 billion. To gain antitrust clearance United had to sell Sierra's Medicare Advantage business to Humana.

Bradley Herring, assistant professor at Johns Hopkins Bloomberg School of Public Health, says even if Obama's proposals are thwarted or scaled back, the administration could use its political capital elsewhere.

"What the federal government could do is try and help states implement the plans they have in the works," he says. Maine, Vermont and most famously, Massachusetts, have enacted healthcare overhaul. The next frontier could be California, which came close to passing universal healthcare in 2007.

Proponents say they will try again next year. -- C.M.

THE NEW FDA

With a $2 billion budget, the Food and Drug Administration regulates products that account for 25 cents of every American consumer dollar spent. But as the science behind these products gets more complicated, especially on the drug side, and manufacturing spreads worldwide, the agency's mission has greatly outpaced its budget.

With a Democratic president-elect backed by Congress, the situation is about to change.

"The big muscle players on the Hill are pro-funding for the FDA, and they understand what role it plays in public safety and the economy," says former FDA counsel Areta Kupchyk, now an attorney at Reed Smith LLP in Washington who advises life sciences firms on FDA regulatory matters.

Across the political spectrum, observers agree the FDA needs more money. In a report requested by the FDA commissioner and released in February, the FDA's own science board said the agency was so underfunded that "American lives are at risk." The scathing report warned that budget gaps could also drive away talented people who haven't already left in frustration.

The Democrats will likely layer on more oversight at a time when the drug industry feels the agency's risk aversion has already bogged down the march of new drugs to market. However much blame FDA deserves for too much "safety first," it's no question the bottleneck is a factor in massive industry changes.

Years of perceived coziness between the agency and drug companies, which have also had their way on price-control issues such as re-importation and Medicare negotiation (there isn't any), have made Democrats, and Republicans such as Sen. Chuck Grassley of Iowa, loaded for pharmaceutical bear.

At an April hearing related to tainted Heparin from China, Rep. John Dingell, D-Mich., famously took FDA Commissioner Andrew von Eschenbach to task when the commissioner tried to parry questions about lack of resources for factory inspection.

"You're not the first fella I've had to skin for not doing his job and coming up here and defending an indefensible situation," Dingell said. "You are carrying water for an administration that has not given you the resources that you need."

Others, including Sen. Ted Kennedy, D-Mass., and Rep. Henry Waxman, D-Calif., are itching for more sweeping change (though the day after the election, Waxman was also itching to take Dingell's position at the head of the House Energy and Commerce Committee). In an e-mail, Dingell spokeswoman Jodi Seth said his staff plans to keep working on such changes as more user fees and inspections.

The pressure has helped. Legislation last year that reauthorized the agency's user-fee structure also added post-marketing surveillance of drug safety. The drug review division, known as CDER, has added hundreds of staffers since fiscal 2008 began, though some hiring is just to backfill empty positions. But more people aren't necessarily a quick fix, as drug reviewers take a long time to train, says attorney Kupchyk: "It almost is like rocket science."

Adding much-needed factory inspectors is one thing, say critics. But piling on safety reviewers will add to the backlog of products waiting to come to market. "They're already tripping over each other in a panic over safety and to review [products] ad nauseam," says Peter Barton Hutt, the lead author of the science board report. "It's no longer benefit and risk that's important; it's just risk."

Research firm EvaluatePharma Ltd. says the FDA has a 38% to 47% chance of missing its review deadline for new drug applications, depending on the therapeutic area. For drugs likely to have high demand, delays could cost companies millions of dollars. Hutt, a former FDA chief counsel now at Covington & Burling LLP in Washington, says the situation is discouraging research and cites Pfizer's recent decision to end cardiovascular work.

afety proponents say the industry, top-heavy for years with sales and agressive marketing, created its own problems. Last year was the worst in 25 years for approval of innovative medicines, but productivity was already waning before the Vioxx backlash. And industry attempts to downplay or hide risks have led to more backlash. With a Democratic landslide on Nov. 4, says Hutt, another layer of pharmaceutical safety provisions is "a done deal. There's no one to bring balance to it."

Congress will almost certainly give the FDA authority to review and approve copycat biotech drugs, a category that exists in Europe but not in the U.S. There's debate how close a generic biologic can be to the original because of the manufacturing complexity. Most likely, the FDA will require some clinical testing, unlike with traditional generics, and the additional costs will temper the rush to build a biogenerics industry.

Another change to watch for is whether the FDA will base new drug reviews not just on science but on "comparative effectiveness," or stricter hurdles for new drugs based on what's already available. It's a standard more attuned to insurance payers' needs that could weed out so-called me-too drugs and steer patients toward acceptable generic substitutions.

Some observers feel this has already become unspoken policy for some therapeutic areas but wonder whether it could become codified. "Everyone's on the edge of their seats watching for this," Kupchyk says.

That could be said about everything the Obama administration does.