Details remain unclear on Medicare drug deal

Jun 23 2009

The White House formally announced the drug manufacturers' plan to lower Medicare drug prices Monday. While details still remain unclear, it appears drug companies may benefit from the deal.

The New York Times reports: "The White House on Monday hailed what it described as a 'historic agreement to lower drugs costs' for older Americans, but it was not immediately clear how much the government would reap in savings that could be used to pay for coverage of the uninsured. As part of the agreement, pharmaceutical companies promised to help narrow a gap in Medicare coverage of prescription drugs that is known as the doughnut hole."

"Drug companies said they would give most beneficiaries a 50 percent discount on brand-name medicines bought when they hit the gap in coverage. This could be a boon to Medicare beneficiaries, and AARP praised the deal. But drug company lobbyists and Senate aides said that none of these savings would accrue to the government, which has no liability for a patient's drug costs in the coverage gap. Charles A. Butler, a pharmaceutical analyst at Barclays Capital, the investment bank, said the drug industry was offering an olive branch to Congress and the White House, in contrast to its 'vociferous disagreement' with President Bill Clinton's proposals in 1993-94." Mr. Butler told the Times that "he did not think the latest concessions would have 'a material adverse impact' on drug company earnings."

The New York Times reports: "The lobby for drug companies, the Pharmaceutical Research and Manufacturers of America, or PhRMA, said it had pledged $80 billion over 10 years to help 'reform our troubled health care system.' The commitment came in a deal with the White House and Senator Max Baucus, Democrat of Montana and chairman of the Finance Committee." But Senate aides and drug company lobbyists said the dollar amount "reflected total projected savings to the health care system and included unspecified future concessions, besides the drug discounts in the coverage gap." Senate aides also said that "some of the $80 billion reflects savings to the government. Some reflects savings to older Americans. But all the savings from closing the doughnut hole would go to beneficiaries, not the government."

The Times also notes "Congressional reaction suggested that the industry's voluntary price concessions had whetted the appetite of lawmakers for broader, deeper discounts. ... Even as Mr. Obama welcomed the new agreement, drug companies opposed another significant part of his agenda: a proposal that would prohibit brand-name drug companies from paying generic drug makers to delay the marketing of generic products, which often cost much less" (Pear, 22).

The Wall Street Journal reports that the concessions could have a bright side for drug makers. "The pharmaceutical industry's agreement to contribute $80 billion over 10 years to a proposed health care overhaul could yield new business for drug makers, and provide them more certainty about how big a hit they'll take from government cost-cutting."

President Obama said that the money would help pay for health care reform. "But not all of the $80 billion will go to offset the costs of covering the uninsured, officials said Monday. An estimated $30 billion will help pay for a new program that discounts brand-name drugs for senior citizens who fall into a gap in Medicare prescription drug coverage, commonly known as the "doughnut hole," a White House official said. That new program -- offering brand-name drugs at half price -- could create new business for the industry while also providing seniors with price breaks. Under the deal, these seniors can buy brand-name drugs at 50 percent off. For drug companies, it would be a loss if a senior currently was paying full price, but a win if a senior was not buying brand-name products at all. The $30 billion represents the approximate lost revenue from all prescriptions filled by this group."

"The remainder of the contribution, approximately $50 billion, will be available to offset the cost of the new subsidies that Congress and the president want to provide to the uninsured, estimated at least $1 trillion over a decade. It's unclear how the government would realize this sum, but officials said one idea under active discussion was imposing lower prices on drugs purchased through the Medicaid program. ... Many analysts estimate expanded insurance coverage could increase yearly drug sales in the U.S. by $9 billion to $12 billion, or 3 percent to 4 percent of annual sales" (Meckler and Mundy, 6/23).

Congressional Quarterly also reports that the deal will not "provide much money to pay for a health overhaul, and details of the agreement remain murky." It notes: "Lawmakers intentionally created the 'doughnut hole' to hold down the cost of the prescription drug benefit when it was enacted in 2003. Ever since, the coverage gap has been a nuisance for seniors and their advocates in Washington. Members of Congress regularly make proposals to close the gap - something the Congressional Budget Office estimates would cost $134 billion over the next ten years." (Wayne, 6/22).