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Federal Saving From Lowering of Drug Prices Is Unclear
By Robert Pear, New York Times
June 22, 2009
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.
As Mr. Obama described the gap, “Medicare covers up to $2,700 in yearly prescription costs and then stops, and the coverage starts back up when the costs exceed $6,100.”
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. Indeed, that is the problem for beneficiaries: they are responsible for the entire cost of drugs in the 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.
In an interview, Mr. Butler said he did not think the latest concessions would have “a material adverse impact” on drug company earnings. “Because of the discounts,” he said, “Medicare beneficiaries are likely to continue filling prescriptions in the doughnut hole, whereas in the past many stopped taking their medications because the drugs were unaffordable to them.”
Congress and the White House are frantically seeking ways to help pay for legislation securing coverage for all Americans. The cost of the bill could top $1 trillion over 10 years.
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.
Mr. Obama described the agreement as a “significant breakthrough on the road to health care reform.”
But Senate aides and drug company lobbyists said the $80 billion reflected total projected savings to the health care system and included unspecified future concessions, besides the drug discounts in the coverage gap.
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, Senate aides said.
Reid H. Cherlin, a White House spokesman, said: “Of the $80 billion, we estimate that $30 billion could be used for the doughnut hole and passed on to seniors. The other $50 billion could go to health care reform, but these savings have not been identified at the moment.”
The House bill would go further. It would gradually eliminate the coverage gap and require drug companies to pay rebates to the government on drugs for low-income Medicare beneficiaries.
Ken Johnson, a spokesman for the drug manufacturers group, said the industry’s $80 billion commitment would include “significant scorable savings to the government,” though details were not available.
Steven D. Findlay, a health policy analyst at Consumers Union, said: “It’s great that PhRMA has stepped up to the plate with a proposal to help lower seniors’ drug costs. But this still leaves the doughnut hole in place and hundreds of thousands, perhaps millions, of seniors on the hook for drug costs they cannot afford. We hope Congress will eventually do away with the doughnut hole.”
Congressional reaction suggested that the industry’s voluntary price concessions had whetted the appetite of lawmakers for broader, deeper discounts.
Senator Olympia J. Snowe, Republican of Maine, said the $80 billion commitment amounted to “a modest percentage” of national spending on prescription drugs. The Department of Health and Human Services estimates that drug spending will total $3.3 trillion over 10 years.
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.
In his budget, Mr. Obama said such “anticompetitive agreements” kept generic drugs off the market. Jon Leibowitz, chairman of the Federal Trade Commission, said these deals would cost consumers tens of billions of dollars in the next decade.
A House subcommittee has approved a bill to ban such “pay-for-delay settlements.” A Senate committee is poised to approve a similar bill this week.
Mr. Leibowitz said, “Drug companies are lobbying furiously against the legislation because they want to preserve their monopoly profits at the expense of consumers.”
But Diane E. Bieri, executive vice president of the drug manufacturers association, said the settlements sometimes benefited consumers because they avoided litigation and allowed generic drugs to enter the market before drug patents expired.
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