Obama Budget Takes a Slap at Pharma

Despite a slight boost in funding for the Food and Drug Administration and stronger tax incentives for investment in R&D, significant changes in Medicare drug reimbursement and coverage policies have biopharmaceutical companies up in arms. 

The biggest hit comes from the Obama administration’s proposal to impose rebates on drugs provided to low-income Medicare patients in Part D plans. That change plus added rebates on drugs that experience price hikes faster than inflation would cost pharma companies $117 billion over 10 years. The 2015 budget plans also seeks to encourage greater use of generic drugs by these “dual eligible” beneficiaries and for pharma companies to provide discounts to cover 75% of the cost of drugs prescribed to patients in the Part D coverage gap – up from 50% discounts today. And reimbursement would reduce “excessive” payment for certain drugs covered by Medicare Part B by revising the formula for calculating reimbursement.

In addition, the White House budget would block brand-generic settlements that affect when a competitor product comes to market. And it seeks to cut the exclusivity period for biotech therapies from 12 to 7 years – ostensibly to encourage the development of biosimilars. All these provisions taken together are calculated to cost industry $36 billion over ten years.

The main good news for biopharmaceutical companies is the proposal to simplify and make permanent the R&D tax credit, which has bipartisan support in Congress. The Biotechnology Industry Organization praised the tax revision, while predicting that the changes in Medicare coverage and in data protection for biologics would jeopardize biotech R&D and discourage innovation.

Similarly the paltry funding increase for the National Institutes of Health drew fire from the biomedical research community, which noted that the proposed $31 billion budget for 2015 actually falls below pre-sequester NIH funding levels. Meanwhile, much of the increase in FDA resources relies on ever-growing user fees, and the small rise in appropriations goes to food safety initiatives. For drugs, there’s a focus on funding more drug manufacturing facilities in China; development of a universal flu vaccine and medical counter-measures; and broader oversight of drug compounding.

Even though the budget proposal is likely to die on Capitol Hill, the plan indicates the main policy priorities of the Obama administration for the coming year. Proposals to boost taxes for the rich and provide cuts for the middle class; to promote education and early childhood development; and to support transportation and infrastructure renewal will be prominent themes moving into the fall Congressional elections.