1:22 PM
Jan 18, 2019
 |  BioCentury  |  Politics, Policy & Law

Pharma falling off budget cliff

How the budget cliff, Trump and congressional Democrats are targeting biopharma

Three strong arms are lining up in Washington to take turns whacking the biopharma piñata. Divisions within the industry, a lack of new ideas, and resistance to change are making a bad situation worse for drug companies.

The first bat is synched to a clock that started ticking in 2018 when Congress passed a law that created a $126 billion budget hole in FY20. Congress will have to figure out how to fill that hole this spring.

At least one third of it will be filled with cash extracted from drug companies.

Trade associations and pharmas are scrambling to come up with proposals to meet congressional demands that could amount to $40 billion or more in government savings over a decade. If industry can’t deliver acceptable ideas for reducing spending on drugs, Congress will impose its own cost-cutting solutions.

HHS Secretary Alex Azar is wielding the second bat. He is determined to achieve visible drug price cuts that will provide relief to patients and political wins for President Donald Trump.

Industry is already in the middle of a battle with the Trump administration over a blueprint for reducing drug costs that would create an international reference pricing regime for many biologics and give insurers and PBMs more leverage over the prices of small molecules (see “Getting Serious”).

Democrats in the House have started swinging the third bat, a campaign to pass price control legislation.

This upcoming budget crisis is the result of a short-term fix to a self-inflicted wound.

While the House agenda’s most aggressive moves are unlikely to make it past Senate gatekeepers, measures that change the landscape for drug development are certain to be enacted.

Budget imperatives, public outrage over out-of-pocket costs, and a president who is to the left of the Republican Party when it comes to policing drug prices have weakened the resolve of pharma’s traditional allies.

While the pharmaceutical industry may be able to stave off the most disruptive proposals, companies will have to start changing their business models to adjust for a future in which society demands better drugs at lower prices (see “A Pathway to Biopharma 3.0”).

A $126 billion cliff

While the FY19 budget impasse is dominating the news, the next budget crisis is just around the corner.

This upcoming budget crisis is the result of a short-term fix to a self-inflicted wound.

In 2018, Congress enacted the Bipartisan Budget Act (BBA) to provide relief from discretionary spending caps it created in 2011 in the Budget Control Act.

The BBA lifted the caps for two years, producing a short-lived glut but setting up a funding let-down in FY2020. The only way to avoid a budget cliff is for Congress to pass another bipartisan budget bill -- an unlikely outcome given the current level of dysfunction in Washington.

To start the appropriations process, Congress must find $126 billion in budget savings, or offsets, over a 10-year period, and it must do it by the beginning of April.

Last year, Republican leaders told pharma lobbyists to prepare for $20 billion in cuts to government drug spending. In recent weeks, that number has doubled, and...

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