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Avalere’s Take: President Obama’s FY2017 Healthcare Budget

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President Obama released his budget for the 2017 fiscal year today. Avalere offers the following observations on the healthcare proposals:

The budget included a strong focus on drug prices, including several new proposals aimed at reducing spending on medications. Other proposals would make limited revisions to the Affordable Care Act (ACA) to modify some provisions that have been particularly unpopular. The President also called for significant investments in key disease priorities, including mandatory spending to support the “moon shot” initiative to cure cancer and emergency funding to address Zika virus.

“Building on public attention on the issue, the administration has continued to advance new proposals aimed at reducing prescription drug spending,” said Dan Mendelson, president at Avalere. “While major changes to drug payments are unlikely during this Congress, proposals to increase transparency are likely to be furthered in 2016.”

Drug pricing: The budget contains many familiar proposals aimed at reducing federal spending on prescription drugs, such as requiring Medicaid-level rebates for low-income Medicare beneficiaries and increasing manufacturer contributions to close the Part D coverage gap. However, the budget also includes several important, new proposals, including:

  • Increased transparency on drug pricing by requiring manufacturers to report research and development costs, discounts, and other information.
  • Creation of a new, voluntary Medicaid purchasing pool for high-cost drugs, which would aim to negotiate deeper supplemental rebates on behalf of the program.
  • Modifying reinsurance in Medicare Part D to increase health plan responsibility for catastrophic costs, with the intent to promote increased management of high-cost beneficiaries.
  • Additional proposals to curb spending on drugs administered by physicians, though details were not included in preliminary budget documents.

ACA: The budget seeks to preserve the President’s hallmark health law but does propose modest changes to address targeted issues, including:

  • Modifying the ACA Cadillac tax to better account for regional variations in healthcare spending and acuity of an employer’s workforce.
  • Extending full (100%) federal funding for the first three years a state implements Medicaid expansion regardless of when states choose to expand. Under current policy, states must begin to contribute to the cost of Medicaid expansion in 2017.

Moonshot: Significant additional investment in cancer research through the National Institutes of Health (NIH) and the Food and Drug Administration (FDA) to accelerate progress in preventing, diagnosing, and treating cancer.

In addition to the proposals described above, the budget includes other proposals that would impact a variety of healthcare stakeholders, including competitive bidding in Medicare, changes to the Independent Payment Advisory Board (IPAB), and additional value-based payment reforms.

“While major federal legislative changes are unlikely leading up to the election, the Administration will likely pursue policy changes that can be implemented without Congress to secure its legacy on priority issues,” said Elizabeth Carpenter, vice president at Avalere. “In addition, the President’s Budget serves as a potential starting point if a Democrat wins the 2016 presidential election.”

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