President's budget takes a big bite out of Medicare drug spending

Expect plenty of teeth-gnashing in the pharma industry over the next several weeks. President Obama's budget proposal not only proposes accelerated discounts for Medicare Part D drugs, but cuts to the Part B program governing treatments administered by doctors. The president also wants to outlaw pay-for-delay patent settlements and shorten the exclusivity window on biologic drugs.

Obama stopped short of proposing overall Medicare price negotiation. He didn't bring up drug re-importation. Nor did he raise the possibility of cutting pharma's tax deduction for consumer advertising. But the cuts he is suggesting are riling drugmakers, branded and generic.

When pharma made its healthcare-reform deal with the White House and Congress, the industry agreed to offer discounts that would close the infamous Part D "donut hole" by 2020. Now, the president wants to amp up pharma's discounts to 75% from 50% in 2015. Meanwhile, Part B drug reimbursements would be cut to the average sales price plus 3%. Currently, the reimbursement rate is ASP plus 6%.

And then there's the patent-settlement restrictions. The budget calls for a ban on payments from branded drugmakers to generics makers, as part of a settlement that sets the date for a generics launch. Meanwhile, to speed biosimilars onto the market, the proposal calls 7 years of biologics exclusivity, down from the previously agreed 12 years.

PhRMA's response to the president's proposal was dire. The industry lobbying group called the budget "bad for patients, bad for innovation and bad for the economy," and warned that cancer clinics would stop taking Medicare patients, that tens of thousands of "high value" jobs in the biopharma sector could be lost, and R&D investment would slow down.

- see the statement from PhRMA (PDF)
- get the budget rundown from RAPS