The Wonk Room

PhRMA Announces ‘Voluntary Effort’ To Cut Rx Costs By $80 Billion In 10 Years

On Friday, drug manufacturers “tentatively agreed to provide as much as $80 billion worth of discounts” over 10 years to seniors who are “subjected to crushing out-of-pocket expenses when the yearly amounts they pay for medication fall within” the ‘donut hole’ not covered by Medicare.

The Medicare Part D drug benefit contains a gap in coverage that “leaves beneficiaries on the hook for the cost of prescription drugs when the cost of their prescription drugs passes $2,700 in a year. Coverage kicks back in when a beneficiary’s annual drug cost passes $6,154 in a year.”

The agreement, which was made in negotiations with the Senate Finance Committee, could arguably provide savings for millions of Medicare beneficiaries but is contingent “upon enactment of a sweeping health-system overhaul“:

If health-reform legislation is enacted, the agreement would bring financial relief to about 3.4 million elderly and disabled Americans who currently fall into a coverage gap known as the “doughnut hole.”… Under the proposal, U.S. drug companies would provide half-price discounts to Medicare recipients in the “doughnut hole” and provide other unspecified discounts and rebates for a total of $80 billion in savings to the government.

Like the health industry’s voluntary commitment to slow the growth of health care spending by 1.5 percentage points a year over 10 years, this move by drugmakers “may have been intended to forestall more severe cuts.” It’s more of a public relations victory than a sustainable policy difference. Drug manufacturers may issue coupons or rebates to seniors but it’s unclear how much of the “unspacified discounts” “would benefit Medicare beneficiaries directly and what portion would accrue to the federal treasury.”

As Merrill Goozner notes, “not much of the money will be available for health care reform. The donut hole is by definition out-of-pocket costs for seniors. Cutting those expenses will not free up money in government budgets for helping the uninsured. That means the Congressional Budget Office will score the offer at much less than the $80 billion.” Economist Dean Baker points out that “the projected $80 billion in savings in context” would “equal to a bit more than 2 percent of the $3.8 trillion that the Centers for Medicare and Medicaid Services project the country will spend on drugs over the next decade.”

This isn’t to say that the commitment is worthless. It’s just more political than real, voluntary rather than mandatory. Americans already pay some of the highest drug prices in the world (according to a 2001 report by the House Committee on Government Reform, as a result of price controls in other countries, some drugs cost 31 percent to 48 percent less in Canada, France, Italy, Britain, Germany and Japan than in the United States), and so the industry’s foggy voluntary effort is only inspiring in the sense that it suggests that the industry still believes that health care reform is a very real possibility.