July 6, 2009 – The drug industry’s decision to chip in $80 billion in prescription drug discounts under healthcare reform included a promise to provide a 50-percent discount on brand-name drugs dispensed during the Medicare Part D coverage gap, or “donut hole.”
The proposal earned drug makers big headlines and accolades from patient advocacy groups. Media have since reported, however, that $50 billion – nearly two-thirds of the money – were earmarked for purposes other than Medicare. That other sack of cash could translate into new breaks for Medicaid and 340B providers.
While no official breakdown of the money has been released yet, one report said that drug companies have signed off on an increase in the drug rebate levels they pay Medicaid. The House Tri-Committee draft legislation released a few days before the industry deal proposed to raise the rebate from the current 15.1 percent of average manufacturer price to 22.1 percent.
According to a July 1 article in Politico, drug makers agreed to hike the rebate to 23.1 percent. This would cost manufacturers up to $35 billion in additional rebate costs. But higher Medicaid rebates would also benefit participants in the 340B drug discount program as 340B discounts are calculated using essentially the same rebate formula that Medicaid uses.
Other industry concessions include the establishment of a federal approval process for biogenerics and a promise to cover any shortfall in the programs the industry has promised to fund, Politico reported.
AARP : “An early win for health reform”
The industry offer was brokered in negotiations the drug makers held with President Obama and the Democratic leadership in Congress in recent weeks. It was announced during a June 22 press conference at the White House attended by the president, Senate Finance Committee Chairman Max Baucus (D-Mont.), and Senate Health, Energy, Labor and Pensions Committee Chairman Chris Dodd (D-Conn.)
Billy Tauzin, president and chief executive of Pharmaceutical Research and Manufacturers of America, representing leading brand-name manufacturers, called the deal a “momentum changer in the legislative efforts to reform our troubled healthcare system.”
Barry Rand, AARP’S chief executive, called the industry plan to allocate billions to drug discounts for patients stuck in the Part D donut hole an early win for health reform. “It is a signal the process is working and will work,” he said.
Patients reach the gap when they’ve spent $2,700 in a year in drug expenses, and ends when they’ve spent $6,100, forcing many to stop taking their medications or into financial distress.
Government paying most of the bill
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Hospitals Offer Major Concessions Three hospital associations offered to contribute between $150 billion and $160 billion over 10 years toward the cost of insuring 46 million Americans, media reported July 7. Lower DSH payments, occurring over time as more people get insured, would make up for some of the savings, the reports said. |
But critics noted that the Part D concession will yield few savings to the government, which will carry the lion’s share of healthcare reform costs. Part D plans that provide insurance coverage in the donut hole almost uniformly mandate that patients use generic drugs while in the gap. Those generic drugs average one-third of the cost of brand-name equivalents.
If patients are given access to higher-priced brands sold at half-price, patients and the Medicare program may ultimately incur greater costs. In addition, the higher cost of branded drugs would move Part D patients through the coverage gap more quickly to reach the so-called catastrophic coverage level. Because the government is required to pay 95 percent of the cost of prescribed drugs for patients at that level, this could cause public expenses to balloon.
Patching the donut hole, sort of
Some also questioned to what degree discounts on branded drugs will truly help the uninsured. Even with a 50-percent discount, most brand-name drugs would cost more than their generic equivalent.
“It may help some patients when they need to take the brand-name and there isn’t a generic available,” said Laurel Marsden, outpatient pharmacy manager at VCU Health System in Richmond, Va. “But I think that these drugs in the donut hole will still be cost-prohibitive. The patient will choose not to fill the prescription, or stretch out the quantity and take medication at a reduced dosage.”
Gary Horne, pharmacy director at San Mateo Medical Center in northern California worries that the management of the proposed company-sponsored drug discount program may prove difficult. A pharmacy would have to know which manufacturers offer the discount when a patient reaches the donut hole, for example. And how, Horne asked, would a pharmacy be reimbursed for the discount?
“This recent offer by PhRMA has generated more questions than answers,” said Michael Bukach, senior vice president of Pharmacy Network and Clinical Operations at Universal American, a leading Medicare Part D insurance provider. “At this point in time, we have received no details from any of the pharmaceutical companies.”
Ultimately, the industry proposal would likely increase sales of drugs, noted Barbara Ryan, an equity analyst who covers pharmaceutical companies for Deutsche Bank.
“Roughly 20-25 percent of Medicare D patients reach the donut hole, and the majority of them either stop or switch their medications,” she wrote in a June 21 research note. “Therefore, pharma may be providing discounts for branded drugs which will primarily represent incremental demand.”
With the industry taking a proactive role in health reform, Ryan added, “this agreement represents a more palatable form of concession than alternative measures that could have increased the government’s direct purchasing power, and discounts.”
So who are the winners? Patients who move quicker through the donut hole to qualify for the government’s catastrophic-level drug coverage would win. So would the brand-name drug industry, which regains access to a market it’s been shut out from since Medicare Part D’s inception in 2006.