• Prescription Drug
  • Original Analysis

President’s FY 2020 Budget Includes Drug Proposals

March 13, 2019


The Administration has been active in outlining its agenda to lower prescription drug costs. In May 2018, the Administration published its American Patients First Blueprint, which outlined the Administration’s proposals to reduce drug costs. The FY 2020 budget proposal builds off of these concepts, proposals in previous budget requests, and current Administration action relating to prescription drug pricing by making additional, sometimes new, proposals to modernize Medicaid and Medicare Parts B and D.

We note, there were no specific regulatory proposals included in the budget on prescription drug pricing. Instead the budget focuses on legislative proposals relating to prescription drug pricing.

Click here to read our HHS-wide proposal analysis.

Part D Proposals

The budget proposes to eliminate cost sharing reductions on generics and biosimilars for low-income subsidy Medicare Part D enrollees. The budget also calls for eliminating beneficiary cost sharing above the catastrophic coverage threshold. Finally, the budget also proposes to exclude manufacturer discounts from the calculation of true beneficiary out-of-pocket costs.

Part B Proposals

It calls for providing the Secretary with authority to consolidate certain drugs currently covered under Medicare Part B into Part D. This could allow for increased price competition by leveraging Part D plan negotiating abilities.

Addressing a weakness identified by the Office of Inspector General and the Medicare Payment Advisory Commission (MedPAC), the budget would require all drug manufacturers to report from average sales price (ASP) data for Part B drugs and provide the Secretary with the authority to apply civil monetary penalties to manufacturers who do not report required data.

Under the budget’s proposals, new drugs that are currently paid at 106 percent of their wholesale acquisition cost (WAC) would see Medicare payment reduced to 103 percent of WAC – another proposal previously floated by MedPAC and others.

Furthermore, the budget proposes to reduce payment for innovator drugs from ASP plus six percent to ASP minus 33 percent when a manufacturer files a pay-for-delay agreement or takes other anti-competitive action after the primary patent or market exclusivity period expires.
Finally, the budget proposed to eliminate transitional pass-through payments under the Outpatient Prospective Payment System (OPPS) in order to further eliminate patient out-of-pocket costs while speeding up access to 340B discounts for these drugs.

Medicaid Proposals

As included in last year’s proposal, the budget calls for a five state demonstration to test a closed Medicaid formulary in which Medicaid can negotiate prices directly with drug manufacturers. Additionally, the proposal would increase the civil monetary penalty paid by drug manufacturers for providing false or late reporting of information to the Medicaid Drug Rebate Program.

The budget also proposes to eliminate the Medicaid rebate cap, ensuring that manufacturers pay rebates on all price increases for drugs.

340B Proposals

The budget also includes 340B related proposals. These proposals include allowing the Health Resources and Services Administration to collect a 0.1 percent user fee for total 340B drug purchases from participating covered entities and also require 340B covered entities to report the savings achieved by the 340B program and how these savings are used. The proposal also refers to the CY 2018 OPPS regulation that reduced outpatient hospital payment for 340B drugs from ASP plus six percent to ASP minus 22.5 percent. Currently, these dollars need to be redistributed across Medicare payments to outpatient hospitals in a budget neutral way. The proposal would change this funding distribution to non-budget neutral, in that hospitals providing at least one percent of patient care costs in uncompensated care will receive redistributed savings based on the percentage of all uncompensated care they provide compared with other outpatient hospitals.


Please contact John Warren at or Katie Weider at for more information.

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