Reducing prescription drug prices is a major theme in the Trump Administration’s fiscal year (FY) 2020 budget proposal, with policies intended to increase competition, encourage better negotiation, incentivize lower list prices, and cut out-of-pocket costs for beneficiaries.  The Administration’s projected savings from its designated prescription drug budget proposals top $69 billion over 10 years, although that does not include savings for provisions for which the budget impact was not available or that were included in other sections of the budget (e.g., a Medicaid State Drug Utilization Review provision within the Medicaid budget section).

We summarize below the major prescription drug pricing and related proposals in the President’s proposed budget, covering Medicare Parts B and D, Medicaid, and the 340B discount drug program.  All budget savings reflect the 10-year period of FYs 2020-2029.  Note that while most of these provisions would require legislative approval, Congressional committees have already held several hearings this year on prescription drug pricing.  Stay tuned for more action in this area.

Major Medicare Part B Proposals

The proposed Trump budget would:

  • Reduce Medicare Part B payment for innovator drugs from average sales price (ASP) plus 6% to ASP minus 33% if “a manufacturer files a pay-for-delay agreement or takes another anti-competitive action after the primary patent or market exclusivity period expires, whichever date is earliest.”  When the competitor drug is commercially available, the Centers for Medicare & Medicaid Services (CMS) would pay for both innovator and competitor drugs at ASP plus 6%. [Budget impact not available]
  • Limit Part B ASP payment increases to the Consumer Price Index for all Urban Consumers.  [Budget impact not available]
  • Authorize the Secretary to “consolidate” certain Part B drugs into Part D “when savings can be gained from price competition.”  According to the summary, this authority would not be used “when it limits a beneficiaries’ access to the drug or increases beneficiary cost-sharing.” Beneficiary cost-sharing for any drugs shifted from Part B to Part D under this policy could be counted toward the Medicare Advantage out-of-pocket limit for plans with a combined Part D benefit.  [Budget impact not available]
  • Require all Part B drug manufacturers to report ASP data and authorize the imposition of civil monetary penalties (CMPs) on manufacturers for failure to report.  [No budget impact]
  • Reduce payment for single-source drugs, biologics, and biosimilars paid on a wholesale acquisition cost (WAC) basis (i.e., when ASP is not available) from 106% of WAC to 103% of WAC.  [Budget impact not available]
  • Eliminate Medicare outpatient hospital prospective payment system (OPPS) pass-through payments for drugs, biologicals, and biosimilars.  The Administration contends this would remove incentives for manufacturers “to make small changes to their products in order to qualify for higher pass-through payments, which adds costs to the system without true innovation.”  [$4.3 billion]

Major Medicare Part D Proposals

The budget proposes to “modernize” the Medicare Part D benefit by:

  • Excluding manufacturer discounts from the calculation of beneficiary true out-of-pocket costs (TROOP) during the Part D coverage gap.  [$74.7 billion]
  • Increasing plan sponsor liability for drug costs in the catastrophic phase over four years from 15% to 80%, while decreasing Medicare’s reinsurance liability from 80% to 20% and eliminating beneficiary coinsurance.  [$14 billion in additional spending]
  • Eliminating cost sharing for generics, biosimilars, and preferred multiple source drugs for low-income enrollees.  [$930 million]

In addition, the Administration proposes to: 

  • Allow the Secretary to initiate new Part D Coverage Gap Discount Program agreements with pharmaceutical manufacturers on a quarterly, rather than an annual, basis.  [Budget impact not available]
  • Make permanent a CMS demonstration under which CMS contracts with a single plan to provide Part D coverage to low-income beneficiaries while their eligibility is processed. [$300 million] 

The budget also discusses CMS’s proposed Part D Payment Modernization Model to test whether increased plan sponsor liability for Part D catastrophic spending, coupled with greater program flexibilities and formulary management tools (including a rewards and incentives program) reduces expenditures and improves quality of care.  CMS currently is accepting applications from Part D sponsors to participate in this model.  For more information see our previous post 

Major Medicaid Drug Proposals

To reduce Medicaid drug spending, the Administration’s budget proposal would:

  • Clarify definitions to ensure consistency in classifying drugs as brand or generic for rebate purposes. [$347 million]
  • Establish a Medicaid demonstration allowing up to five states to test a closed formulary under which states negotiate prices directly with manufacturers, rather than participate in best price reporting or the Medicaid Drug Rebate Program.  [$410 million]
  • Increase CMPs paid by drug manufacturers for providing false or late reporting of information to the Medicaid Drug Rebate Program.  [Budget impact not available]
  • Remove brand name and authorized generic drugs from the Medicaid Federal Upper Limit calculation for drugs with generic options.  [$980 million]
  • Clarify that a primary manufacturer’s average price must exclude authorized generic sales to secondary manufacturers.  [$150 million]
  • Eliminate the Affordable Care Act cap on Medicaid rebates from manufacturers at 100% of their Average Manufacturer Price.  [Budget impact not available].
  • Require state Medicaid to cover all Medication Assisted Treatments for opioid use disorder approved by the Food and Drug Administration (FDA).  [$865 million]
  • Set minimum standards for Drug Utilization Review programs, including increased oversight of Medicaid opioid dispensing.  [$245 million]

340B Program Proposals

The Administration proposes to:

  • Establish new enforceable regulatory standards for the 340B program and require all 340B-covered entities to report how they used program savings.  [Budget impact not available]
  • Allow the Health Resources and Services Administration to collect a user fee set at 0.1% of total 340B drug purchases from participating covered entities.  [Budget impact not available]
  • Revise a regulatory policy that reduced from ASP plus 6% to ASP minus 22.5% Medicare OPPS payments for drugs purchased through the 340B program.  The budget proposes removing a current budget neutrality provision.  Instead, it would require hospitals to provide at least 1% of patient care costs in uncompensated care to receive redistributed savings, and it would tie redistributed savings to a hospital’s relative level of uncompensated care.  [No budget impact]

Other Drug Policy Proposals

Other drug-related proposals in the President’s proposed budget include:  various policies intended to address opioid abuse; a proposal to require CMS to make public the Part B drugs with the highest reported drug wastage; modifications of the Part D Special Enrollment Period for full-benefit dual eligible individuals; and various changes to FDA generic drug exclusivity policies to promote competition.

For a summary of Medicare and Medicaid provider-related provisions of the proposed Trump Administration budget, see our separate blog post.