The Fiscal Year 2025 Proposed Budget Includes Big Changes for CMS

The Fiscal Year 2025 Proposed Budget Includes Big Changes for CMS

March 14, 2024, Covington Alert

On March 11, 2024, the Biden Administration released its proposed budget for Fiscal Year ("FY") 2025. Proposals related to Centers for Medicare & Medicaid Services ("CMS") programs feature prominently in the proposed budget for the Department of Health and Human Services ("HHS"). In particular, the proposals would expand the Medicaid Drug Rebate Program ("MDRP"), lower prescription drug costs for Medicaid and Children's Health Insurance Program ("CHIP"), and build upon initiatives enacted in the Inflation Reduction Act ("IRA").

With respect to the MDRP, the administration proposes the authorization of a process through which HHS would be able to negotiate Medicaid supplemental rebates on behalf of states. Currently, states operate either on their own or through multi-state purchasing pools to negotiate supplemental Medicaid drug rebates with manufacturers. The budget proposal would allow for a federal negotiation program: CMS and participating state Medicaid programs would partner with a private contractor to negotiate supplemental rebates from drug manufacturers. HHS estimates that this could result in up to $5.2 billion in savings over ten years. The budget does not propose any reforms to the role that pharmacy benefit managers and their affiliated group purchasing organizations may seek to play in Medicaid rebate negotiations, despite bipartisan scrutiny of the industry and the ongoing Federal Trade Commission inquiry into a range of these entities' commercial practices. Other proposed changes in the HHS budget regarding the MDRP include making participation optional for U.S. territories (they are required by statute to participate, although only Puerto Rico currently participates in the program) and excluding territory prescription sales from certain drug pricing calculations to increase the territories' access to the best discounted drug prices available.

The budget also includes a proposal regarding states with separate CHIPs. Currently, states that operate CHIPs separate from Medicaid cannot collect Medicaid drug rebates on drugs dispensed to CHIP beneficiaries. The budget proposal would allow states to collect rebates under the MDRP for utilization under their separate CHIPs starting in FY 2025, thereby aligning CHIP rebate policies with those of Medicaid and Medicaid expansion CHIPs. HHS estimates this could result in $2.3 billion in savings over ten years.

Finally, the proposed budget seeks to build upon the key provisions of the IRA. As previewed in President Biden's State of the Union Address, the proposed budget would increase the pace of the Medicare Drug Price "Negotiation" Program (expanding to 500 drugs over the next decade) and bring drugs into the "negotiation" program sooner after they launch. HHS estimates that implementation of this policy would result in $200 billion in savings over ten years. The proposed budget would also extend Medicare's $2,000 out-of-pocket prescription drug cap, $35 cost-sharing cap for a month's supply of a covered insulin product, and mandatory inflation rebates to the commercial market. The budget also proposes making permanent the enhanced premium tax credits for health insurance that the IRA extended into 2025, which would cost up to $43.1 billion over ten years. Notably, the budget does not include proposals to address patient access to drugs selected for the "negotiation" program, despite the fact that CMS acknowledged in its IRA "Negotiation" Program guidance that plans might be incentivized to disadvantage selected drugs or subject them to inappropriate utilization management.

The budget request has been submitted to Congress, which faces a September 30, 2024, funding deadline for FY 2025.

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