Success! When Congress was debating the new Medicare drug
benefit, the pharmaceutical industry's top priority was to make sure the
government could not negotiate prescription drug prices. The effort paid off
and the final bill included this prohibition.
Insurers also had a lobbying objective: to make sure the new
Part D benefit, unlike the basic Medicare program, would be administered not by
any government agency but by private contractors. They, too, succeeded.
A major plank in the Bush administration's agenda,
meanwhile, was to keep the new benefit from becoming a budget buster. The
solution: to offer low initial premiums to make sure enough people signed up,
as well as a provision to cover catastrophic costs.
In between these two periods, however, there was to be a
money-saving coverage limit which became affectionately known as the doughnut
As one journal article jokingly commented, “If a camel is a
horse designed by a committee, then the camel that is Part D must surely be a
bactrian—the one with two humps and a gap in the middle.”
So the major players got what they wanted, but wait.
First, it appears that while insurance plans have not pushed
for price reductions, they did succeed in negotiating substantial rebates.
Second, according to a recent AARP survey, 74% of over-65 respondents said they
always or usually ask for a generic when available. Only 11% of seniors opt for
brand name drugs.
What's more, according to Verispan, the switch to generics
is happening much faster under Part D than among patients covered by other
insurance plans. In other words, it looks like the pharmaceutical industry
scored a hollow victory.
To see why, put yourself in the patient's place. Once total
drug expenditures (the patient's plus the plan's) hit $2,510, the patient has
to pay for every penny of his or her prescriptions. Coverage doesn't resume
until the total hits $5,726. That potential $3,216 outlay gives participating
seniors a strong incentive either to go off the medication, to buy
over-the-counter products or to accept a generic substitute.
In addition to reining in costs, the Bush administration is
said to have pushed the coverage gap in a further attempt to privatize
They thought that the doughnut hole would persuade
beneficiaries to switch to the insurance-run Medicare Advantage plans. While
premiums may be twice as much as basic Medicare, there are no ceilings for drug
payments, and over the years some one out of three Medicare members switched to
But the other two-thirds haven't rushed to join them. They
still prefer shopping at Costco, Wal-Mart or CVS for a flat fee of $4 or $5 per
Understandably, the political tsunami in favor of a drug
benefit having been what it was, pharma did not want to oppose it.
There was even the possibility that it would boost profits.
Instead industry successfully fought for the “don't negotiate” provision.
Sometimes, however, it pays not to wish too hard for what seems like an obvious
immediate advantage, but instead to think ahead to the end game.
Warren Ross is editor at large of MM&M