Obama And His Prescription Drug Balancing Act

To save money and balance the budget, the White House is targeting, among many other things, prescription drugs. Specifically, President Obama wants the pharmaceutical industry to cough up $135 billion in discounts over the next decade by agreeing to negotiate prices for the Medicare Part D program.

Other proposals include reducing Medicaid waste by enforcing rebate programs and increase penalties on drugmakers that fail to comply. And Obama again wants to prohibit so-called pay-to-delay agreements in which brand-name drugmakers and generic rivals strike deals that delay the launch of lower-cost copycat meds, as well as reduce exclusivity period for generic biologics from 12 years to seven years. He proposed these last two notions earlier this year (read here).

Of course, whether any of these will actually go into effect is very uncertain. PhRMA has lined up against Medicare Part D price negotiations, although the pharmaceutical industry does make a juicy target. And rebates are already offered for Medicaid. As for pay-to-delay deals, the Federal Trade Commission has railed against this arrangements for years and a Senate committee passed a bill that would restrict the agreements (read this).

So far, though, the concern has not caught traction with the public at large. And the exclusivity debate for biologics is certain to encounter resistance. The FDA has yet to provide a so-called pathway for development, but the issue has prompted a push-and-pull debate among senators for months (see this).

For those curious, here is what the proposal says about Medicare Part D: "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 Medicare 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. This option is estimated to save $135 billion over 10 years."

As for Medicaid rebates, the White House says this: "Under this proposal, HHS would, when cost-effective, conduct regular audits and surveys of Medicaid drug rebate agreements to ensure the Medicaid program is receiving proper prices and rebate amounts." As for increase penalties, "this proposal would increase the statutory civil monetary penalties on manufacturers that knowingly report false information under their drug rebate agreements for calculation of Medicaid rebates."

The pay-to-delay provision will sound familiar to those who have followed this issue: "The high cost of prescription drugs places a significant burden on Americans today, causing many to skip doses, split pills or forgo needed medications altogether. The administration proposes to increase the availability of generic drugs and biologics by authorizing the Federal Trade Commission to stop companies from entering into anticompetitive deals intended to block consumer access to safe and effective generics. A 2010 FTC study that evaluated the universe of brand-generic settlements and 2008 drug expenditure data found that on average, these agreements delayed entry of a generic by 17 months and cost American consumers as much as $3.5 billion per year.

"More recently, the FTC reported that the number of pay-for-delay agreements skyrocketed from 19 in 2009 to 31 in 2010. Such deals block access to generics and can cost consumers billions of dollars because generic drugs are typically priced significantly less than their branded counterparts. These agreements reduce competition and raise the cost of care for patients both directly, through higher drug and biologic prices, and indirectly through higher health care premiums. The administration’s proposal facilitates greater access to lower-cost generics and will generate $2.7 billion over 10 years in savings to Federal health programs including Medicare and Medicaid.

And then there is the exclusivity for biologics: "Access to affordable lifesaving medicines is essential to improving the quality and efficiency of health care. The administration’s proposal accelerates access to affordable generic biologics by modifying the length of exclusivity on brand name biologics to encourage faster development of generic biologics while retaining appropriate incentives for research and development for the innovation of breakthrough products. Beginning in 2012, this proposal would award brand biologic manufacturers seven years of exclusivity rather than 12 years under current law and prohibit additional periods of exclusivity for brand biologics due minor changes in product formulations, a practice often referred to as evergreening.

"Reducing the exclusivity period increases the availability of generic biologics to encourage faster development of generic biologics while retaining appropriate incentives for research and development for the innovation o breakthrough products. The administration’s proposal strikes a balance between promoting affordable access to medications and encouraging innovation to develop needed therapies. The proposal will result in $3.5 billion in savings over 10 years to Federal health programs including Medicare and Medicaid."

benjamins pic thx to amagill on flickr