17 February 2016 President's final budget includes new proposals to address prescription drug costs and adjusts the "Cadillac Tax" On February 9, 2016, President Obama released his Administration's last budget request, calling for $4.1 trillion in spending in fiscal year (FY) 2017. The budget document provides a framework for the FY2017 budget discussion and appropriations negotiations. In addition, the budget document includes a number of health care proposals that in total would produce $376 billion in savings from federal health care programs over the next ten years — including new proposals designed to address prescription drug costs. The President's FY2017 budget submission abides by the FY2017 discretionary spending caps that were agreed upon in last year's budget deal, spearheaded by former Speaker John Boehner. Although the House and Senate Budget Committees have declined to invite Administration officials to discuss their budget in advance of a March budget resolution debate, the authorizing and appropriations committees have already scheduled numerous hearings to dissect the Administration's proposals. Specifically, the Budget calls for a new transparency measure that would allow the Department of Health and Human Services (HHS) to mandate that drug companies publicly disclose information including research and development costs, discounts on their products and other data, for specific high-cost drugs that the Secretary identifies through regulation based on the public's interest. The proposal does not have a budget impact. Additionally, the Budget calls for the creation of a Federal-State Medicaid negotiating pool for high cost drugs in order to enable states to better negotiate for lower prices; this proposal is estimated to save $5.8 billion over ten years. The Administration also proposes to modify reimbursement for Part B drugs that are administered in the physician office and hospital outpatient settings by lowering payment from 106% of the average sales price (ASP) to 103% of the ASP. Additionally, if a physician's cost for purchasing the drug exceeds average sales price plus 3%, the drug manufacturer would be required to provide a rebate such that the net cost to the provider to acquire the drug equals average sales price plus 3% minus a standard overhead fee to be determined by the Secretary. This rebate would not be used in calculating average sales price. The proposals are estimated to generate $7.8 billion in savings over ten years. Notably absent from the Budget was CMS' plans to establish a demonstration project to test changes in the way Medicare Part B pays providers and hospital outpatient departments. Late last week documents were posted online that indicated CMS' plans to begin the demonstration projects this summer; however, the documents have since been removed from the website. The agency indicated that the posting of these documents was premature, suggesting that they will be posted at a later date, perhaps in conjunction with the rule-making process. A proposal that has been included in previous budgets includesreducing exclusivity for biologics from twelve years to seven years which would achieve $6.9 billion in savings over a ten year period. The budget also would prohibit brand and generic drug companies from delaying the availability of new generic drugs and biologics that would save the government $13.6 billion over ten years. Pertaining to Medicare, the Administration outlined a plan to allow HHS to negotiate for drug prices in Medicare Part D; this proposal does not have a budget impact. The Budget also outlines policies that would expand Medicaid rebates into the Low-Income Subsidy (LIS) program of Medicare Part D; this proposal is expected to save $121 billion over a decade. The President's budget also includes a Medicare proposal to accelerate discounts for brand name drugs to seniors who fall into coverage gaps, by increasing pharmaceutical rebates from 50 to 75% in 2018; this proposal is estimated to save $10.2 billion over from 2017 to 2026. The Budget also looks to increase competition in Medicare Advantage (MA) by reforming MA payments to increase the efficiency and sustainability of the program. Specifically, the proposal establishes competitive bidding in the MA program by calculating an adjusted benchmark, against which plans are paid, as the lesser of the current law fee--for--service benchmark or the average MA plan bid plus a 5% "buffer" to protect beneficiary rebates. The proposal would also standardize quality bonus payments across counties by removing the doubling of the quality bonus payment which is only available in certain areas and lifting the cap on benchmarks for plans that are entitled to receive a quality bonus payment. This proposal is estimated to generate $77.2 billion in savings over ten years. The budget also calls for strengthening the Independent Payment Advisory Board (IPAB) to reduce long-term drivers of Medicare cost growth, which is estimated to save $36 billion over ten years. The proposal lowers the target rate for triggering IPAB applicable for 2018 and after from gross domestic product per capita growth plus 1 percentage point to gross domestic product per capita growth plus 0.5 percentage points. The Administration also wants to expand the 3.8% investment tax that was implemented as a part of the Affordable Care Act (ACA). The budget proposal would expand the tax and eliminate a "loophole" which would raise $272 billion over ten years. The Administration stated that this money would be allocated to the Medicare hospital insurance (HI) trust fund and would extend the fund's solvency by fifteen years. A recent Congressional Budget Office report stated that the HI trust fund would be exhausted by 2026, under the current spending environment. A new budget proposal would incent the remaining nineteen states to expand their Medicaid programs. Currently, the Affordable Care Act (ACA) provides a 100% federal match to states that expand Medicaid to newly-eligible populations from 2014 to 2016; starting in 2017 the 100% federal match is gradually phased down to 90%. The President's budget proposal guarantees three years of full federal funding for current non-expansion states, regardless of when they choose to expand their programs. Ensuring access to enhanced Federal match for all Medicaid expansion states is expected to cost $2.6 billion over ten years. The FY2017 Budget provides $17 million to the 340B Drug Pricing Program, which is an increase of $7 million above FY2016 levels. The Budget notes that the, "FY 2017 Budget seeks new rulemaking authority to ensure adherence to the program's principles, compliance with the law, and the most effective use of this critical safety-net program." Additionally, the Budget proposes a new user fee program totaling $9 million to support the program. The Administration's Budget also includes several proposals pertaining to delivery system reform. The Budget would establish a new bonus payment to hospitals that furnish a sufficient proportion of their services through eligible alternative payment models (APMs) beginning in 2022. The proposal states that bonuses would be paid through the Inpatient Prospective Payment System permanently and through the Outpatient Prospective Payment System until 2024. Reimbursement through the inpatient and outpatient prospective payment systems to all providers will be reduced by a percentage sufficient to ensure budget neutrality. The Budget calls for the implementation of bundled payment for post-acute care that would generate an estimated $9.9 billion over a decade. Furthermore, there are a number of proposals designed to make it easier for allied health professionals and hospitals to transition to alternative payment models. The FY2017 budget proposal alters the 40% excise tax on high-cost health plans, also called the "Cadillac Tax." The Administration's proposal revises the tax by attempting to adjust for geographic variations. The proposal would change the threshold so the tax does not exceed the average cost of a "gold" level Marketplace plan in the state. This proposal is estimated to cost $1.26 billion over ten years. The Administration also requested a study of the potential effects of the 40% excise tax on firms with unusually sick employees that would be conducted by the Government Accountability Office, in consultation with the Department of Treasury. The Budget proposes to invest $5.1 billion for health centers, as well as $3.6 billion in new mandatory resources in FY 2018 and FY 2019, to extend the current mandatory funding for 2 additional years. The Budget would allow the Secretary of HHS to expand the basis for beneficiary assignment in Accountable Care Organizations (ACOs) to include nurse practitioners, physician assistants, and clinical nurse specialists. It is estimated this proposal would generate $150 million in savings over ten years. The Administration is proposing $1.1 billion to combat opioid and prescription drug abuse. The proposal outlines $460 million over the next two years to fund medication-assisted treatment as well as $90 million to the Department of Justice and the Department of Health and Human Services (HHS) to increase access to naloxone and expand prescription drug overdose prevention programs. The two agencies will also implement a new, $10 million Buprenorphine- Prescribing Authority demonstration to expand the types of providers who can prescribe medication assisted treatment. Specifically, the Budget includes $15 million per year for two years in mandatory funds to better monitor the effectiveness of treatment programs employing different treatment modalities under real-world conditions. The program would evaluate the short-, medium-, and long-term outcomes of substance abuse treatment programs in order to increase effectiveness in reducing opioid use disorder, overdoses, and opioid-related deaths. The Budget includes $18 million in additional funding above FY2016 levels, for a total of $85 million to support improving prescribing practices. The funding will also support the uptake of the CDC's new "Guideline for Prescribing Opioids for Chronic Pain" amongst providers, and efforts to increase clinical decision making. Finally, the Budget requires states to track high prescribers and utilizers of prescription drugs in Medicaid. This proposal is estimated to save $770 million over a decade. The Administration also seeks $755 million for the cancer moon shot initiative. The majority of the funding, $680 million would go to the National Institutes of Health (NIH) to expand clinical trials for health disparity populations, pursue new vaccine technology, and fund cancer research; $195 million of which is allocated for FY2016. The Budget also includes $75 million for the FDA to develop the regulatory pathways for these new technologies, ensure quality systems for trials, and facilitate the sharing of important data across government, academia, and industry. The FY 2017 Budget expands funding for the Precision Medicine Initiative (PMI) by $100 million, to a total of $300 million within the NIH. The funds will be used to support new studies on how the DNA from an individual cancer tumor can be used to predict the right choice of targeted therapies, how resistance to therapy can occur, and how to test new combinations of targeted cancer drugs. Additionally, PMI will continue to scale up the cohort study of one million Americans to build information for new research studies on diseases. The Administration requests $199 million in new mandatory and discretionary investments to increase health care program integrity efforts in FY 2017. If enacted, the Administration estimates these additional investments could yield $23.8 billion in savings for Medicare and Medicaid over 10 years. Separately, the Administration proposed legislative changes to give HHS new tools to enhance program integrity and reduce fraud. The Budget requested that CMS retain a portion of Medicare Recovery Audit Contractor (RACs) recoveries to implement additional actions to prevent fraud and abuse, and also to allow the Secretary to suspend coverage and payment for prescription drugs that pose an imminent risk to patients in Part D. Additionally, the Budget seeks to allow prior authorization for Medicare fee-for-service items and services that are at the highest risk for improper payment.
* Note: While the Budget proposes to cut nearly $1 billion from NIH's discretionary budget compared to last year's funding levels, the Administration is proposing to replace it with $1.8 billion in new mandatory funding. The table below summarizes proposals affecting mandatory health care spending that were included in the President's budget.
HHS Secretary Sylvia Mathews Burwell testified on provisions of the President's FY 2016 budget related to HHS on February 11 before the Senate Finance Committee.
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