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Obama targets drug spending in health section of final budget

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(Bloomberg) — President Barack Obama proposed $375 billion in spending cuts to U.S. health programs in his fiscal 2017 budget, including deep reductions to rates the U.S. pays drugmakers for their products, and $77 billion in Medicare Advantage program cuts.

The proposals are part of the $4.1 trillion budget that the Obama administration is proposing for the 2017 fiscal year, which starts Oct. 1. Some items — like cuts to drug spending under Medicare — have been proposed before. With a Republican-controlled Congress, it’s unlikely that many, or any, of them will become law. The proposed savings would be realized over 10 years.

See also: Tweak to ‘Cadillac plan tax’ hated by business wins Obama no friends

About $140 billion of the spending reductions are tied to proposed changes in Medicare’s drug coverage. The budget calls for giving the Health and Human Services (HHS) secretary authority to negotiate prices for biologics and other expensive medicine, a proposal also made in past years. The government is specifically prohibited from negotiating prices with drugmakers in Medicare’s drug benefit program. Another proposal would give HHS broad authority to require drugmakers to disclose information on their costs, such as for research and development.

There are also suggested savings from patients who are in Medicare and also poor enough to be covered by Medicaid — so called dual-eligibles. For those patients, the U.S. would pay Medicaid’s lower rates for drugs. Drugmakers would be also required to increase the rebate they give to Medicare patients once their individual spending reaches a certain level. Under another proposed program, the administration would push insurers that offer prescription drug coverage to do a better job of managing the care of their members who have particularly high pharmaceutical costs.

In Medicaid, the state and federal health program for the poor, the budget proposes to limit states’ drug costs by allowing them to join together to collectively negotiate with manufactures over payments for high-cost pharmaceuticals.

Much of U.S. health spending is defined as mandatory under U.S. budget rules and goes toward the Medicare and Medicaid programs. The health budget also includes $77.9 billion of discretionary spending. That’s down from $84.6 billion a year earlier, in part due to how the government accounts for some changes to mandatory spending.

Other Medicare savings proposals include:

  • Using competitive bidding to set payment rates in the private Medicare Advantage program. The administration says that would save $77 billion over a decade.

  • Encouraging doctors to treat Medicare patients more efficiently, and improve coordination among hospitals and nursing homes, saving $180 billion over a decade.

  • Changes to deductibles and copays in Medicare Part B, beginning in 2020, saving $54 billion over a decade.

Marilyn Tavenner, who is now president of America’s Health Insurance Plans (AHIP) and was previously the head of the Centers of Medicare & Medicaid Services (CMS), an arm of HHS, put out a statement blasting the budget proposal. 

“Millions of seniors depend on Medicare Advantage, yet, the administration’s latest budget proposal would directly undermine the care and programs that are proven to work and improve beneficiaries’ health,” Tavenner says in the statement. “This is not the time to cut Medicare Advantage. It’s the time to protect and strengthen it.”

See also: Median Medicare Advantage out-of-pocket max to rise 3.5%

The Obama administration has already previewed a number of health-related initiatives, such as an adjustment to thresholds for the Patient Protection and Affordable Care Act (PPACA) Cadillac plan tax, and a proposal to extend federal support for new states that decide to expand Medicaid under the PPACA. Changes to the Cadillac plan excise tax, which doesn’t take effect until 2020, would cost about $1.3 billion over the next decade.

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