Obama plan hits pharma with rebates, pay-to-delay ban

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President Obama's deficit-cutting plan hits pharma with a one-two-three punch. As he's advocated before, Obama would impose higher drug rebates on dual-eligibles, the low-income Medicare patients who would also qualify for Medicaid. He'd prohibit the patent settlements between generics firms and branded drugmakers known as "pay-to-delay" deals. And he'd squeeze the exclusivity for branded biotech drugs to 7 years from the 12 mandated in the healthcare reform bill.

First, the drug rebates: Branded drugmakers would be expected to give a 23% rebate on products used by low-income Medicare beneficiaries. Generics makers would have to rebate 13% on those patients, Bloomberg reports.

The drug rebates are expected to save the government $135 billion over 10 years. They would hit some drugmakers harder than others. When the U.S. health reform law began to take effect, eroding earnings, Wall Street analysts figured Bristol-Myers Squibb ($BMY) had the highest exposure to Medicaid in Big Pharma, with 10% to 15% of sales coming from Medicaid patients. Eli Lilly ($LLY) and AstraZeneca ($AZN) were also deemed to have broad Medicaid exposure. Pfizer ($PFE) and Merck ($MRK), however, were said to have "meaningfully lower exposure," by J.P. Morgan analysts at the time.

The other money-saving proposals in Obama's plan--shorter biologics exclusivity and a pay-to-delay ban--have their fans. Companies hoping to produce biosimilars could get to market sooner, of course. And the Federal Trade Commission has been after a pay-to-delay ban for some time, saying it could save several billion dollars a year.

FTC Chairman Jon Leibowitz sent out a statement this morning applauding the proposal. "Curbing anticompetitive pay-for-delay deals in the pharmaceutical industry...would reduce the deficit by billions of dollars over the next decade without raising taxes or cutting critical programs," he said. "This should be a painless choice for the deficit reduction committee." Drugmakers of generic and branded persuasions might disagree.

Whatever the individual differences, drugmakers have been lobbying against dual-eligibles rebates and other pharma-related cuts. The trade group PhRMA commissioned a study of the rebates, finding lost revenues could touch off as many as 260,000 job losses. And just last week, the Healthcare Leadership Council put forward its own proposed cuts, which did not include drug rebates, but did include higher co-pays and other cost-sharing by Medicare beneficiaries. If it's any consolation, Obama's plan does ask beneficiaries to fork over more cash. So pharma's pocketbook isn't alone.

- see the New York Times story
- get more from Bloomberg

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