Budget Cutters Propose Big Hits on Pharma

The Obama administration’s budget plan for fiscal year 2014 apparently assumes that the pharmaceutical industry can support Medicare and other health programs through changes in drug coverage and payments. It also relies on industry fees to keep FDA up and running. Meanwhile, FDA and other public health agencies are contending with the sequestration mandate, which is taking another bite out of government programs and payment policies.

Despite the the administration’s claim that its boosting 2014 funding for FDA by $821 million, that actually translates into less money for oversight of drugs and biologics. Most of the added resources will come from newly proposed user fees and previously agreed-on fee increases. Any added revenues are targeted to food safety, a new China import initiative, support for medical countermeasures and lab and building costs. The actual funds available to FDA for this year already are $117 million less than for 2012, according to the Alliance for a Stronger FDA. And without hefty new user fees, which are not likely to be approved, the numbers will go down even more for 2014. It’s pretty hard to detect what the numbers really are, but the prospects for a stable regulatory operation are not bright.

In addition to contributing more to FDA operations, the White House wants biopharmaceutical companies to shoulder more of the costs of Medicare drug benefits and to absorb some very costly policy changes. One relatively new proposal is to boost industry’s contribution to closing the Medicare Part D “donut hole.” Pharma companies already are providing 50% discounts on drugs for seniors caught in the infamous coverage gap; now Obama wants to up the discount to 75%, a change projected to cost manufacturers some $11 billion over ten years.

Another idea is to revise reimbursement for drugs provided through doctors’ offices and clinics under Medicare Part B. Here the administration wants to shift the reimbursement rate from average sales price plus 6% to ASP plus 3%. That change carries a $9-billion price tag over 10 years.

Add to the list several perennial hits on pharma. Obama proposes to extend the Medicaid drug rebate program to Medicare dual eligibles, estimated to cost industry $3 billion next year and $142 billion over a decade. Another plan is to ban brand-generic “pay for delay” agreements, which would bring in $740 million next year and $11 billion for the long term, theoretically by boosting generic drug use. And the White House also expects $3 billion in savings by reducing the exclusivity period on biosimilars from the currently approved 12 to seven years. That’s a particularly dicey issue for pharma and biotech companies, as they are looking to promote a 12-year protection period in new international trade agreements under negotiation.

Sequestration struggles
Add to these “reforms” the cuts already levied under budget sequestration. FDA has to absorb a 5% reduction in funds – some $200 million – on its already squeezed budget total. Agency officials say they hope to avoid staff furloughs and layoffs by going slow on new hires and new programs. But the agency is predicting fewer foreign inspections and a possible slow-down in application approvals.

It appears that the 5% hold on funds also applies to user fees anted up by industry. As user fee revenues can’t be used to pay down the national debt or support other government activities, some $80 million in fee payments may just sit in the Treasury until Congress agrees on a better strategy for curbing federal expenditures.

Sequestration also is cutting Medicare fees to providers and vendors by 2%, which applies to Medicare Part D plans as well as to reimbursement to oncologists for chemotherapies administered under Part B. Cancer clinics made headlines a few weeks ago by reporting that they were turning away Medicare patients because they can’t afford to purchase drugs under the reduced rates.

Things are even worse at the National Institutes of Health, where the sequester means a loss of $1.6 billion on its $30 billion budget. The 2014 Obama budget gives NIH a tiny increase, but all the talk of major initiatives to map the human brain may be overwhelmed by the agency’s need to limit many activities. And that jeopardizes prospects for new research discoveries that will lead to innovative medicines for patients.