U.S. President's Fiscal Plan 2011 Sees Rise in Healthcare Outlays

President Barack Obama has unveiled the federal government budget plans for the fiscal year 1 October 2010 to 2011. The administration is pitching to the U.S. Congress for a total outlay of US$3.834 trillion, and total receipts of US$2.567 trillion. With a deficit set at a record of US$1.56 trillion for the first time, challenges for priority plans for the healthcare sector are at an all-time high. The main outlays and receipts affecting the healthcare and pharma sector are as follows:

• Of the total outlay of US$3.84 trillion, healthcare features under mandatory as well as discretionary spending structures at US$2.165 trillion and US$1.415 trillion respectively.
• Outlays for Medicare and Medicaid are at US$1.43 trilion, while social security expenditure is at US$730.1 billion.
• In terms of receipts, social security, Medicare, and retirement are at US$935.12 billion out of the total receipts of US$2.567 trillion.
• Government expenditure as a percentage of GDP is expected to drop progressively from 2010, while revenues that have stayed flat will start to rise from the same year towards 2015.
• Total Medicare spending is expected to go up from US$450 billion in 2010 to US$650 billion by 2015. This is an expected rise, as the coverage for patient population will increase under the healthcare reform plan.
• Under the discretionary budget authority, the department of Health and Human Services (HHS) is estimated to have a total outlay of US$812 billion for 2010 and US$900 billion for 2011.
• An increase in the U.S. FDA's 2010 budget by US$6 million to US$2.061 billion, and for 2011 the department is estimated to receive US$2.508 billion. This is a rise from the US$2.362 billion estimated for 2010.
• The states are to receive US$25.5 billion in cash to tide over costs related to Medicaid programmes until July 2011. An additional provision of 6.2% of Medicaid costs is also earmarked from the federal government.

The HHS budget can be accessed here.

Generic Drug Reviews

Tied to the budget plan are proposals to help regulators expedite generic drug reviews faster. Reuters reports that the federal government has earmarked US$38 million in legislation outlining higher fees for the FDA. The higher revenues are expected to help improve approval timelines and bring down the backlog of applications. The move is similar to the Prescription Drug-User Fee Act (PDUFA) for innovative drugs, wherein the FDA provides a timeline for drug reviews. The source also noted that the budget plan provided for a US$2-million rise in funding for generic drug reviews.

Outlook and Implications

Healthcare reform has been a priority on President Obama's agenda over the past year. However, with the U.S. Congress deliberating over two healthcare bills with focus heavily on expenditure, the sector received a lower-than-anticipated emphasis on the fiscal year budget plan. It is clear that the strain on the fiscal deficit has also cast a shadow on healthcare reform proceedings, as projections from the Office of Management and Budget foretell a declining trend in expenditure and higher revenues over the next five years.

Agency-wise allocations see the HHS second only to the Department of Defense, which has the largest discretionary provision. Still, the amount of US$900.85 billion for 2011 may prove to be less than expected. There is greater support for states to pay for Medicaid costs, and a higher allocation of funds for veteran affairs with specialised care for mental health conditions. The forecast for Medicare spending as anticipated shows a steady increase over the next five years, putting further pressure on the outlay for the healthcare reform.

Provisions for the FDA have been increased, noting the expected overhaul of the institution that was kickstarted in early 2009. The focus on review times for generic drugs underscores the growing encouragement provided to the segment as the focus is firmly on bringing down expenditure on healthcare. Generic drug makers are expected to largely welcome the move to impose fees to review drug applications if it translates to a better approval timeline by the FDA.

The reform agenda is expected to maintain its focus even though the budget plan indicates that the government is taking a cautious approach. Over the next few weeks, the debate on key points of the healthcare reform process will intensify with health insurers and pharmaceutical companies hoping to push for less regulatory interference. The government, on the other hand, will seek to underline the expanding healthcare coverage and improving healthcare delivery quality as its main agenda.