Filling The Doughnut Hole

Insurance companies are not the only bad actor in the health care industry. To a degree all of them are. Some doctors overtreat and order up unnecessary tests. The medical device industry pushes their products even if they have no utility. Hospitals charge exorbitant rates. The incentives in the system are entirely wrong. And of course, then there's the pharmaceutical industry. And in 2002, they negotiated with President Bush and the Republican Congress to put the doughnut hole into the Medicare Part D bill. What was that? Well, your prescriptions were covered up to the first $2,700, and then you had to pay full price until you hit $6153.75, essentially offering no benefit to the elderly who consume enough drugs to meet that lower bound. It was a forced gap put in by an industry looking to make a buck, since the consumer has no bargaining power in that doughnut hole, while the government does. And under the current President and the Democratic Congress, they returned to the negotiating table and said end this now. So the industry will.

Drug manufacturers have tentatively agreed to provide as much as $80 billion worth of discounts on medicines purchased for government programs such as Medicare, providing a bit of cash for President Obama's expensive and ambitious attempt to give health coverage to every American.

The accord, approved yesterday by the board of the Pharmaceutical Research and Manufacturers of America (PhRMA), is a voluntary pledge by the industry to reduce what it charges the federal government over the next 10 years, according to a source close to the negotiations who spoke on the condition of anonymity because of White House sensitivity about the talks.

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." Medicare recipients must now pay the full price of brand-name medications after they have incurred a total of $2,200 in drug expenses, until reaching an outer limit of $5,100.

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.

"This is real money on the table," the source said.

The White House put out slightly different numbers for the doughnut hole, but basically it means that Medicare would purchase those drugs in the middle, and they can get more for their money. This leads to lower costs. The President released a statement, and here's part of it:

"As part of the health reform legislation that I expect Congress to enact this year, pharmaceutical companies will extend discounts on prescription drugs to millions of seniors who currently are subjected to crushing out-of-pocket expenses when the yearly amounts they pay for medication fall within the "doughnut hole" - any payments by seniors not covered by Medicare that fall between $2700 and $6153.75 per year. The existence of this gap in coverage has been a continuing injustice that has placed a great burden on many seniors. This deal will provide significant relief from that burden for millions of American seniors.

"The agreement by pharmaceutical companies to contribute to the health reform effort comes on the heels of the landmark pledge many health industry leaders made to me last month, when they offered to do their part to reduce health spending $2 trillion over the next decade. We are at a turning point in America's journey toward health care reform.

It doesn't seem like much of a deal for the pharmaceutical companies, but if you add 30 million or so Americans to the rolls of the insured, that's a big ol' market for new prescription drugs. Plus, Medicare, the largest purchaser of drugs in America, has a certain amount of leverage. I don't mind them making a profit - but they must offer fair and equitable prices for their work and try to create products people need to alleviate pain and disease instead of hair growers and boner pills.

The doughnut hole has long been one of my biggest bugaboos about the power of industry, and I'll be happy to see it cut in half. That's a tangible benefit for seniors and something around which they can rally for comprehensive reform.