Drugmakers score windfall
Under Medicare Part D, companies can charge more for prescriptions
The New York Times
Salt Lake Tribune
sltrib.com
( Our tax dollars pay retail for bulk drugs! THANKS, Dumbya! )
The pharmaceutical industry is beginning to reap a windfall from a surprisingly lucrative niche market: drugs for poor people.
And analysts expect the benefits to show up in many of the quarterly financial results that drugmakers will begin posting this week.
The windfall, which by some estimates could be $2 billion or more this year, is a result of the transfer of millions of low-income people into the new Medicare Part D drug program that went into effect in January. Under that program, as it turns out, drugmakers are in a position to charge higher prices for the drugs given to those people than when their medicines were covered under federal-state Medicaid programs for the poor.
About 6.5 million low-income elderly people or younger disabled poor people were automatically transferred into the new federal Part D program. The advent of Part D has not affected the drug coverage for the 45 million other low-income people whose drugs are still paid for under state Medicaid programs. Those programs are closely monitored, and drugmakers often end up paying rebates to the states.
It is too early to calculate the full effect of the shift of the former Medicaid patients now covered by Part D. But analysts expect it to generate hundreds of millions of additional dollars this year for the drug companies, which have long chafed under the pricing restraints of the state programs.
Drugs tend to be cheaper under the Medicaid programs because the states are the buyers, and by law they receive the lowest available prices for drugs.
But in creating the federal Part D program, Congress - in what critics saw as a sop to the drug industry - barred the government from having a negotiating role. Instead, prices are worked out between drugmakers and the dozens of large and small Part D drug plans run by commercial insurers.
Since Part D went into effect, the pharmaceutical industry has raised the wholesale prices of its brand-name drugs an average of 3.6 percent. Although the actual amount spent depends on what each insurer negotiates, in many cases the drugs for those 6.5 million people who used to receive their medicines through Medicaid will cost more now.
Initially, the added costs will be paid by the insurers administering the new Medicare drug program. But when it comes time for the insurers to settle accounts with the government, the costs of the 6.5 million drugs for the transferees will end up being passed along to federal taxpayers, according to analysts and health care economists.
The windfall for the drugmakers was made possible by a provision of the 2003 Medicare law that exempts Part D drugs from ''best price'' rebates that the drugmakers have been required to give to the state Medicaid programs since 1991. Those rebates are meant to make sure that state Medicaid agencies pay no more than the best prices drug companies offer to any big commercial insurer.
Under Medicaid, the federal government and state agencies paid more than $14 billion annually for the drugs of the 6.5 million transferees. Without the best-price rebates, the cost would have been 25 percent higher, or about $17.5 billion, said Stephen W. Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota.
Nobody yet knows what the total drug bill will be for these people under Part D, beyond the assumption by many experts that it will be higher. Medicare will not have solid numbers until it can analyze the hundreds of monthly reports that the plans in the Part D system are required to file.
Yet one indicator of the higher revenue from the dual-eligibles - people in Part D whose other health care needs are still covered by Medicaid - has already been seen in reports by drug companies this year showing double-digit sales increases in the United States of certain drugs that are heavily used by Medicaid patients. |
