Obama budget would bleed pharmas

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The White House released its proposed budget for the 2014 fiscal year this morning, and while it gives a modest boost to Health and Human Services, it also seeks to extract more cost savings from pharmas.

If enacted by Congress, the President's budget would make pharmas pay more in several ways, by:

  • Mandating that the Medicare Part D prescription drug program pay the lower Medicaid rates on drugs prescribed to so-called “dual eligibles,” low-income seniors who qualify for both Medicare and Medicaid. That measure would reap an estimated $123 billion in savings over a decade, according to the Office of Management and Budget.
  • Hiking Part D manufacturer discounts for branded drugs from 50% to 75% in 2015 in order to close the Part D “Donut Hole” five years early. The Affordable Care Act originally called for the coverage gap—an artifact of an inane Congressional accounting trick—to be eliminated by 2020. Jacking up discounts would save an estimated $11 billion over 10 years, says OMB.
  • Pushing generics for low-income beneficiaries by “increasing specified copayments for branded drugs from their current law level,” unless a generic substitute is unavailable, “while lowering specified copayments for generic drugs by more than 15%.” That measure would save an estimated $7 billion over 10 years.
  • Banning “pay for delay” agreements (estimated savings: $11 billion), cutting biologics exclusivity from 12 years to 7 and bar biologics ‘evergreening ($3 billion),' clarifying the definition of brand drugs and excluding authorized generic drugs from AMP calculations on branded drugs ($8.8 billion).

The budget would also make wealthier seniors pay higher premiums for prescription drugs under the Part B and D programs, lower the Medicare growth threshold for intervention by the Independent Payment Advisory Board (IPAB) and boost Medicare and Medicaid fraud enforcement.

PhRMA called the budget proposal “bad for patients, bad for innovation and bad for the economy,” and said it would undermine Medicare Part D, “a model for success,” while deterring investments in biologics R&D. The AMA, on the other hand, generally praised the budget—but blasted the provision strengthening IPAB, “which would set another arbitrary spending target and rely solely on payment cuts to reach it,” an AMA statement said.

Of course, the White House's budget is best read as a political document rather than a serious piece of legislation—its chances of making it through Congress intact are nil, but it establishes a series of bargaining positions. Industry lobbyists will have much to say about those provisions once the horse-trading gets underway in earnest.

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