In its 2012 budget proposal for the Centers for Medicare and Medicaid Services, the Obama administration casts its net wide to find potential savings from prescription drug spending to help offset Medicare and Medicaid costs.

But it does so with two legislative proposals expected to face stiff resistance from industry and to have little prospect of passing in the current Congress. And to further complicate the matter, the budget request, released Feb. 14, entangles the pharma provisions in the long-running and contentious issue of revising how Medicare updates rates for physicians, dubbed the "doc fix."

Secretary Sebelius, flanked by CMS Administrator Donald Berwick and FDA Commissioner Margaret Hamburg, at HHS' Feb. 14 budget press conference.

Secretary Sebelius, flanked by CMS Administrator Donald Berwick and FDA Commissioner Margaret Hamburg, at HHS' Feb. 14 budget press conference.

One proposal would authorize the Federal Trade Commission to ban patent settlement agreements between brand and generic manufacturers that result in a delay in generic launches, the so-called “pay-for-delay” settlements. The budget documents project that halting such settlements would save government drug spending of $540 million in 2012 and $8.8 billion in drug reimbursements over the 2012-2021 period.

FTC has pressed the issue in litigation, but officials have said that legislative authority might be required to bar the deals (Also see "FTC Rulemaking Could Be Next (And Last?) Attempt To Curb "Pay-For-Delay"" - Pink Sheet, 6 December, 2010.).

In its original health reform proposal, the Obama administration had proposed banning such settlements, absent "clear and convincing" evidence that pro-competitive benefits outweigh anti-competitive effects (Also see "FTC's Reverse Settlement Campaign May Depend On Congress After Another Court Loss" - Pink Sheet, 24 February, 2010.).

Although the House passed a bill to bar brand/generic settlements in 2009, the legislation never made it through the Senate. And the new Republican majority in the House is not expected to pursue the issue.

The other proposal would amend the recently enacted scheme for approving biosimilars by scaling back the marketing exclusivity for biotech drug innovators from 12 years to seven years. But the document does not anticipate any savings from such a change until 2015, when savings are pegged at $80 million. Savings over the 2012-2021 period are projected to reach $2.3 billion.

Here again, the administration faces an uphill battle in Congress for the change. The biosimilars pathway was passed as part of the health reform law, with the 12 years of exclusivity being added by Democratic lawmakers. FDA is requesting about $15 million for biosimilars regulatory development for 2012 (Also see "FDA's Budget Path To Biosimilars: 21 Applications By 2015?" - Pink Sheet, 21 February, 2011.).

The shorter exclusivity period was proposed, but did not prevail, at a time when the generic drug industry had a strong ally – Rep. Henry Waxman, D-Calif. – at the helm of a key committee. The prospects for shortening exclusivity appear dim now that the House Energy and Commerce Committee is being led by Republican Fed Upton of Michigan.

Paying For The “Doc Fix”

The budget plan would use savings from these two proposals to help offset a payment fix for physicians participating in the Medicare program.

The budget specifies a two-year fix to reverse cuts in physician payments set to occur under the sustainable growth rate formula established by the Balanced Budget Act. The administration also offers a commitment to work with Congress to make the fix permanent. For 2012, the “doc fix” is projected to cost $18.6 billion.

During a press briefing on the budget, HHS Secretary Kathleen Sebelius discussed why the Administration continues to look to the biopharmaceutical industry for revenue despite the industry’s hefty contribution toward health care reform, now expected to reach $100 billion over 10 years,

“We think beneficiaries of Medicare and Medicaid, and taxpayers, deserve the best possible outcomes with the most effective and cost-effective medications and this is a move in that direction,” she said.

CMS 2012 Budget Proposal Highlights

Of the $465 mil. in the HHS proposed budget targeted to implementing the Affordable Care Act, $330 mil. goes to CMS.
CMS 2012 program management budget would increase $974 mil. versus 2010 to $4.4 bil..
FTEs would increase by 641 versus 2010 to 4.9 mil.
Budget, headcount increases reflect consolidation of the Office of Consumer Information and Insurance Oversight into CMS and anticipated expansion in agency activities due to growing numbers of beneficiaries.

The inclusion of the two unlikely pharma measures illustrates how difficult it is for budget writers and policy makers to find savings for Medicare and Medicaid without altering benefits and entitlements. And it may put the ball in Congress' court to find alternative funding sources; physician groups have been lobbying mightily for a permanent fix.

Other contributors to offsetting the cost would come from Medicare and Medicaid “program integrity” measures. Among them is a plan to track high prescribers and utilizers of prescription drugs in Medicaid, expected to save $80 million in 2012.

Taken together, the offset provisions in the budget proposal fall substantially short in the near term of balancing the cost of providing physicians with SGR “relief.” Longer term, the measures are expected to produce much higher returns.

Industry Reacts To Budget Proposal

The branded drug industry quickly challenged the legislative proposals in statements on the budget document.

The Biotechnology Industry Organization said the biosimilars proposal “flies in the face of President Obama’s own call for the U.S. to ‘win the future’ and maintain our nation’s leadership in research and technology.”

The Pharmaceutical Research and Manufacturers of America echoed BIO’s concerns with the exclusivity proposal and also criticized the proposal on generic/brand settlements.

“Restricting such settlements, which already are subject to review by the Federal Trade Commission and the Department of Justice, could discourage pro-consumer settlements that do not delay generic entry past patent expiration, but instead often bring generics to market years before patent expiration,” PhRMA said.

In a separate statement, the Generic Pharmaceutical Association reiterates its support for a reduction in the innovator exclusivity in the biosimilars law but also challenges the generic/brand settlement ban, saying the administration estimate that such a proposal would save $8.8 billion over the next 10 years is “fatally flawed.”

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By Cathy Kelly

CMS 2012 Budget Looks To Biosimilars, Brand/Generic Deals To Offset Costs

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