PharmExec Blog

Obama Deficit Plan Sides With PBMs Over Big Pharma

Obama budget plan cover imageAmid the flurry of cost-cutting proposals aimed at guiding the Joint Select Committee on Deficit Reduction’s (Super Committee) budgetary blade, the Obama Administration has now weighed in with a proposal to cut $248 billion from Medicare spending over ten years, and $73 billion in Medicaid and other health-related spending. The Obama plan, which would increase drug rebates under Medicare Part D and shorten market exclusivity periods for biologic drugs, among other things, has more in common with a proposal put forward by pharmacy benefits manager (PBM) companies than with brand drug manufacturers.

Last week, members of the Healthcare Leadership Council (HLC) – which represents a smattering of top pharma companies, academic institutions, hospitals, pharmacies and other health services providers – released a four point plan that would generate $410 billion in savings over ten years. Most of those recommendations, which include the creation of a Medicare exchange for private plans, an increase in the Medicare eligibility age (from 65 to 67) and a cap on damages in medical malpractice cases, are absent from the Obama plan.

The lone recommendation that both plans have in common is a request to raise premiums on higher-income Medicare beneficiaries. The Obama plan would raise premiums under Medicare Parts B and D by 15% for this higher-income group, eventually extending the 15% increase in premiums across a quarter of all Medicare beneficiaries, the 25% with the highest income levels. The HCL plan goes further, and would require all Medicare Parts B and D beneficiaries with annual incomes of $150,000 or above to cover their full premium costs associated with Parts B (physician services) and D (prescription drug benefit). HLC president Mary Grealy noted that beneficiaries making over $150,000 annually represent “less than three percent” of all those covered under Medicare Parts B and D. That particular recommendation would save $19 billion over ten years, while the Obama Parts B and D premium raise would save $20 billion. The HCL plan, however, would also make beneficiary cost-sharing under Medicare Parts A and B uniform, which would save an additional $32.2 billion, Grealy said during a call with reporters.

The Obama plan is more closely aligned with recommendations made by the PCMA, however, a trade group representing the largest PBMs. For its part, the PCMA says PBMs – which administer prescription drug benefits to over 210 million Americans – can save the federal government $100 billion over ten years, by increasing generic drug utilization, reducing the exclusivity on biologic drugs, and allowing price negotiations under Medicare Part D, among other things. The Obama plan embraces all three of these measures, as well as a ban on pay-for-delay drug settlements, a measure the PCMA included in its letter to the Super Committee. The Obama plan, as written, would shorten market exclusivity for biologics from 12 years to seven years, and would require drug rebates for low-income Medicare Part D beneficiaries. It also advocates for an increased use of mail-order pharmacy, a cost efficiency measure favored by the PBMs. The Obama plan’s Part D drug rebate would save $135 billion over 10 years, by far the largest single cost-cutting measure in the $248 billion Medicare savings proposal. The Obama plan also calls for a strengthening of the Independent Payment Advisory Board (IPAB) – which has yet to be appointed – by lowering the target rate of Medicare spending growth from GDP per capita growth rate plue one percent, to GDP plus 0.5 percent. If Medicare expenditures rise above the predetermined target growth rate, IPAB will recommend policies to Congress to reduce spending. Many of the proposals in the Obama plan cite recommendations from the most recent Medicare Payment Advisory Commission, or MedPAC, report. Full text of the Obama plan can be found here.

More proposals are in the works, with cost-cutting suggestions from House and Senate committees due to the Super Committee by mid-October. PhRMA, which has not released a comprehensive savings plan for the Super Committee, has said that it will not support any legislation that tinkers with Medicare Part D. At this point, it seems likely that PhRMA won’t be supporting the Super Committee’s final decision on where exactly to trim a total of $1.5 trillion from the nation’s budget, since the Committee will almost certainly tinker with Medicare Part D. That decision is expected in November.

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