Budget Winners: FDA, Research, and Rx Coverage

Athough the Bush administration's $2 trillion budget proposal for fiscal year 2003 reduces spending on domestic programs overall, initiatives falling under the bioterrorism-preparedness umbrella escaped the axe. The result is more funding for biomedical research conducted by the National Institutes of Health and for FDA efforts to spur development and approval of new medicines and vaccines.

Medicare Benefits

The budget includes $190 billion to improve Medicare, much of which is intended to help seniors purchase medicines. Recognizing that it may take years for Congress to approve and establish a comprehensive program, HHS secretary Tommy Thompson and Tom Scully, director of HHS' Centers for Medicare and Medicaid Services (CMS), have put together several initiatives to help low-income seniors pay for medicines now.

Discount cards. A Medicare-endorsed drug card program would provide discounts for seniors purchasing medicines at pharmacies. Scully hopes the courts will approve his latest proposal but says he will seek Congressional authorization if necessary.

Pharmacy assistance programs. Another proposal would help states expand pharmacy assistance programs for low-income Medicare patients. State Medicaid programs currently provide pharmacy benefits to elderly patients with income below the poverty line, and 18 states have programs to assist seniors above that income level. To encourage more states to follow suit while also assisting those trying to control spending on expanded programs, HHS now proposes to pay 90 percent of the cost of state pharmacy assistance for Medicare beneficiaries who fall between 100 and 150 percent of the poverty level: up to $17,000 in annual income per couple. Nearly three million seniors could qualify. The program will cost the federal government $77 billion over 10 years and will allow HHS, in effect, to "buy out" portions of existing state programs, such as one in Pennsylvania.

A related "Pharmacy Plus" initiative would allow the 18 states with Medicaid pharmacy programs to apply for a federal waiver to provide benefits to seniors whose incomes are at 200 percent of the poverty level, or $23,220 in yearly income per couple. The waiver also would allow states to control spending through preferred therapy lists.

Jill Wechsleris Pharmaceutical Executive's Washington editor.

Expand Medigap. New Medigap options to help seniors pay for medicines are also on the table. CMS will seek Congressional approval for Medigap policies that require beneficiaries to pay some premiums and co-pays-as opposed to first-dollar coverage-but offer coverage of medicines in return.

HMO programs. A final proposal would encourage more HMOs to provide Medicare coverage that includes prescription benefits under the Medicare+ Choice program. HHS proposes to increase payments to M+C to halt both the program's erosion and health plans' efforts to limit pharmacy coverage in remaining programs.

FDA Scores

The administration's 2003 budget also increases FDA's budget by $123 million, bringing the total to $1.7 billion. Much of that gain comes from $160 million to support anti-bioterrorism activities that were launched last year. While most of the "preparedness" money will support a major expansion in food import inspections, it also provides $54 million for the development of new vaccines, therapies, and diagnostic tests. In addition to funding research for radiation safety standards and for testing medicines and vaccines to combat lethal agents, there's an additional $5 million to improve oversight of blood screening and processing.

FDA also gains additional resources for initiatives to enhance patient safety and reduce adverse events from medicines. The agency will receive $22 million to improve its adverse event monitoring system, to develop a policy for bar coding pharmaceutical packaging, and to increase the number of hospitals reporting medical device errors under the MeDSun program, which now will expand to include pharmaceuticals.

Other FDA programs are also slated for expansion:

• Generic drug regulation will have a budget of $46 million (up $4.6 million), enabling the agency to review 75 percent of abbreviated new drug applications within six months of filing.

• Bio-research monitoring will keep the higher funding levels established last year.

• Bovine spongiform encephalopathy (BSE) oversight efforts will support more inspections of foreign plants producing active pharmaceutical ingredients, among other initiatives.

User Fee Boost

The requested expansion in FDA's new budget assumes that Congress will agree to the huge increase the fees industry pays under the Prescription Drug User Fee Act (PDUFA). The budget calls for boosting user fees for biologics and drugs by more than 60 percent to almost $300 million, $103 million more than 2001's total. While negotiations for PDUFA 3 continue, FDA insists that it needs more money to balance the current "mismatch of workload and revenues," according to Jeff Weber, acting senior associate commissioner for management and systems.

FDA has experienced a big drop in fee revenues because sponsors have filed fewer applications than anticipated, and because 35 percent of applications have qualified for fee waivers, compared with the 18 percent originally projected. Recent legislation that authorizes application fees for pediatric supplements should reduce the number of waivers, thus boosting the total money collected. Moreover, FDA is talking to generics makers about paying fees for their abbreviated drug approvals.

The agency wants more user fee revenues to support risk management initiatives and other safety programs, as well as collaborative efforts with other federal and state agencies.

Winners and Losers

Of the $5.9 billion in bioterrorism readiness budgeted for next year, about $1.7 billion will go to NIH. That increases total NIH funding by almost $4 billion to $27.3 billion, fulfilling a promise to double the institute's budget in five years. NIH will use the added revenues to research vaccines and diagnostics, including $250 million to develop and purchase a new recombinant anthrax vaccine. Cancer research also gets a big boost, as does R&D for AIDS therapies.

At the same time, HHS' Agency for Healthcare Research and Quality (AHRQ) faces a budget cut of $50 million, reducing it to $251 million. Although funding continues for several patient safety initiatives, AHRQ will have much less money to fund outside research into health quality and cost-effectiveness issues.

The Centers for Disease Control & Prevention faces a squeeze on resources for many of its programs. CDC also will not get as much money this year to build its pharmaceutical stockpile, because much of the purchasing is completed. AIDS treatment funding also remains fairly flat, ruling out expansion of the Ryan White AIDS drug assistance program.

"Average Price" Debate

To offset additional federal spending for Medicare pharmacy benefits, HHS aims to cut total outlays on medicines by revising payment policies. One proposal aims to increase the drug rebates that manufacturers pay states by nearly $5.5 billion over five years. That increase results from a change in the way the rebate is calculated. Instead of basing rebates on the difference between the manufacturer's best price and the average manufacturer's price (AMP), the new formula would use the difference between best price and average wholesale price (AWP). Companies would be required to report both AMP and AWP.

Taking another tack, HHS also wants to revise how Medicare reimburses for covered therapies administered in doctors' offices and clinics: namely, oncology and inhalation treatments. Medicare currently reimburses physicians for those medications based on AWP listings, but evidence of fraud in the program has prompted Congress to call for a shift to calculations based on AMP or "average sales price."

Scully of CMS says that the administration would prefer that Congress legislate the change, but that CMS will revise the payment policy administratively if necessary. The new method of calculation is expected to save the government $12 billion over ten years.