President's budget would deal a wallop to biopharma wallets

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Barack Obama
Barack Obama
President Obama's proposed 2013 budget would mandate an estimated $156 billion in new rebates to low-income seniors through Medicare over the next decade – discounts that would come out of the pockets of drug companies and could cost tens of thousands of jobs, according to PhRMA.

The President's budget proposal stands little chance of making it through a divided and sharply polarized Congress, but it does establish a new marker for Democratic budget plans. Under the budget, pharmas, which already agreed to $90 billion-plus in discounts for Medicare and Medicaid recipients as part of the Affordable Care Act, would be on the hook for another $156 billion through 2022.

In a statement, PhRMA chief John Castellani cited a study from the Battelle Technology Partnership Practice that said a $20 billion annual reduction in biopharma sector revenue would cost 260,000 job losses throughout the economy. Under the President's plan, the Medicare rebates would save the government $3.7 billion for fiscal year 2013 and gradually accelerate to $13.6 billion in 2017.

The rebates pharmas agreed to under the Affordable Care Act have put the hurt on profits, though the industry hopes to recoup them through volume gains as the law extends insurance coverage to 30 million currently uninsured Americans. Pfizer estimated that it would take a $300 million hit from ACA-related costs in 2010, followed by $900 million in 2011 and $800 million in 2012. Merck recorded a $170 million cost from the legislation in 2010.

Castellani called the proposed new rebates “a short-sighted proposition that could destabilize the program and threaten hundreds of thousands of American jobs.” The Medicare prescription drug benefit, he said, “is working well for seniors,” with costs below initial projections. “We should not disrupt this successful program.”

The Medicare rebates scheme is a revival of one Congressional Democrats tried to include in the 2010 Affordable Care Act. The budget states: “Under current law, drug manufacturers are required to pay specified rebates for drugs dispensed to Medicaid beneficiaries. In contrast, Medicare Part D plan sponsors negotiate with manufacturers to obtain plan-specific rebates at unspecified levels. The Department of Health and Human Services Office of Inspector General has found substantial differences in rebate amounts and net prices paid for brand name drugs under the two programs, with Medicare receiving significantly lower rebates and paying higher prices than Medicaid. Moreover, Medicare per capita spending in Part D is growing significantly faster than that in Parts A or B under current law. This proposal would allow Medicare to benefit from the same rebates that Medicaid receives for brand name and generic drugs provided to beneficiaries who receive the Part D Low-Income Subsidy beginning 2013. Manufacturers previously paid Medicaid rebates for drugs provided to the dual eligible population prior to the establishment of Medicare Part D. The Fiscal Commission recommended a similar proposal to apply Medicaid rebates to dual eligibles for outpatient drugs covered under Part D.”

PhRMA's ire was also raised by another 2010 flashback in the form of a provision that would lower the exclusivity period on biologic drugs to seven years, from the current 12, and ban “evergreening,” or extending patent life of branded biologics through minor tweaks to product formulations, with the aim of promoting faster development of generic biologics. And the budget proposes a ban on “pay for delay” agreements between branded and generic drug manufacturers.

“The biosimilars provision of the health care reform law – the only provision in the law to garner strong bipartisan support – achieves an essential balance,” said Castellani. “It provides appropriate incentives to support future medical advances. It supports high-value jobs that are critical to our nation's economic recovery.  And, it provides savings by creating the first pathway for federal regulators to approve biosimilars.“Similarly, patent settlements are a vital aspect of a patent owner's ability to protect intellectual property. Restricting such settlements, which already are subject to review by the Federal Trade Commission and the Department of Justice, could discourage pro-consumer settlements, which often bring generics to market years before patent expiration. Without settlements, costly litigation could keep these generics from being available to patients for years.”
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