Success! When Congress was debating the new Medicare drugbenefit, the pharmaceutical industry’s top priority was to make sure thegovernment could not negotiate prescription drug prices. The effort paid offand the final bill included this prohibition.
Insurers also had a lobbying objective: to make sure the newPart D benefit, unlike the basic Medicare program, would be administered not byany 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. Thesolution: 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 amoney-saving coverage limit which became affectionately known as the doughnuthole.
As one journal article jokingly commented, “If a camel is ahorse designed by a committee, then the camel that is Part D must surely be abactrian—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 pushedfor price reductions, they did succeed in negotiating substantial rebates.Second, according to a recent AARP survey, 74% of over-65 respondents said theyalways or usually ask for a generic when available. Only 11% of seniors opt forbrand name drugs.
What’s more, according to Verispan, the switch to genericsis happening much faster under Part D than among patients covered by otherinsurance plans. In other words, it looks like the pharmaceutical industryscored a hollow victory.
To see why, put yourself in the patient’s place. Once totaldrug expenditures (the patient’s plus the plan’s) hit $2,510, the patient hasto pay for every penny of his or her prescriptions. Coverage doesn’t resumeuntil the total hits $5,726. That potential $3,216 outlay gives participatingseniors a strong incentive either to go off the medication, to buyover-the-counter products or to accept a generic substitute.
In addition to reining in costs, the Bush administration issaid to have pushed the coverage gap in a further attempt to privatizeMedicare.
They thought that the doughnut hole would persuadebeneficiaries to switch to the insurance-run Medicare Advantage plans. Whilepremiums may be twice as much as basic Medicare, there are no ceilings for drugpayments, and over the years some one out of three Medicare members switched toMA plans.
But the other two-thirds haven’t rushed to join them. Theystill prefer shopping at Costco, Wal-Mart or CVS for a flat fee of $4 or $5 pergeneric prescription.
Understandably, the political tsunami in favor of a drugbenefit 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 obviousimmediate advantage, but instead to think ahead to the end game.
Warren Ross is editor at large of MM&M
From the February 01, 2008 Issue of MM+M - Medical Marketing and Media
