Obama budget is a disaster for drugmakers

April 12, 2013

Brad wrote earlier this week about how pharmaceutical companies were one of the biggest losers in President Obama's budget. This BGov graph shows how much, exactly, they're losing by — a lot.


The Obama budget cuts for pharmaceuticals work out to $164 billion, just under half the total health-care budget cuts the president is seeking.

Most of this grows out of the White House proposal to change the way  Medicare pays for drugs to make it look more like the Medicaid program.

Right now, Medicaid gets a great deal on drugs: Pharmaceutical companies must sell prescriptions to the entitlement program at the very best price they offer private insurance plans, or 23.1 percent lower than the average price.

This has led to big discounts for the program: The Office of the Inspector General at Health and Human Services estimates that the provision has reduced Medicaid spending on drugs by 45 percent.

Medicare Part D, which covers prescriptions for seniors, does have the power to negotiate with drug companies. But that same OIG report found that that tends to lead to smaller discounts: 19 percent vs. the 45 percent reduction that Medicaid receives.

The White House is proposing in its budget to extend Medicaid's drug discounts to Medicare, estimating that the move would save the federal government $123 billion. Or, to put it another way, it would cost drug companies the same amount — making pharmaceuticals the biggest health-care loser in the Obama budget.

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Dylan Matthews · April 12, 2013