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Pharma may benefit from deal to cut Medicare drug costs

Contemporary Long-Term Care Weekly, June 25, 2009

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In a deal reached between the Pharmaceutical Research and Manufacturers (PhRMA) of America and Senate Finance Committee chairman Max Baucus over the weekend, the pharmaceutical industry has agreed to spend $80 billion over the next 10 years to help reduce the cost of prescriptions for elderly Americans. However, senior citizens may not be the only ones who will benefit from the deal, which could actually increase business for pharmaceutical companies, according to The Wall Street Journal.

The deal aims to help elderly people afford their medications during the gap in Medicare prescription drug coverage, known as the doughnut hole. Medicare Part D, the prescription drug benefit, covers a beneficiary's drug costs up to $2,700 in a year. When this amount is reached, the doughnut hole begins, in which beneficiaries are responsible for all of their drug costs until their out-of-pocket expenses reach $4,350. After this, Medicare Part D coverage begins again.

Many beneficiaries enrolled in Part D stop taking their medication when they reach the doughnut hole, and others switch to less expensive generic drugs. Under the deal, drug companies will provide a 50% discount to most Medicare beneficiaries on brand-name drugs purchased during the doughnut hole, according to The Wall Street Journal. The deal may cause many beneficiaries to continue taking brand-name drugs during the coverage gap, which will ultimately increase revenue for pharmaceutical companies.

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