Biotech Values

[DewDiligence]

Medicare ‘Donut Hole’ Is Partially Closed

[A quirk of the 2003 legislation that created Medicare Part D, the donut hole refers to the cumulative-expense range of $2,830 to $6,440 for an individual during a given calendar year. Big Pharma’s lobbying group, PhRMA, agreed to cut prices by 50% for branded drugs that fall within the donut hole as part of the negotiations underpinning the new healthcare law (thereby averting more onerous provisions that might have made it into the law).]

http://online.wsj.com/article/SB10001424052748704094104575143961683850340.html

›MARCH 25, 2010, 3:14 P.M. ET
By JARED A. FAVOLE

WASHINGTON—The health-care legislation passed Thursday promises big cuts in senior citizens' drug bills, and the pharmaceutical industry also could benefit in the long run.

The Senate voted on a package of changes that will close the so-called doughnut hole, a gap in Medicare Part D prescription-drug coverage. The House was expected to approve the measure later Thursday and send it to President Barack Obama for his signature.

The doughnut hole, or coverage gap, falls between $2,830 and $6,440. That means Medicare Part D enrollees whose annual prescription drug costs fall in that gap have to pay out of pocket.

Under the new bill, those costs would be defrayed through a mix of federal funds and hefty discounts shouldered by the pharmaceutical industry.

Starting next year, pharmaceutical companies will have to provide a 50% discount on brand-name medicines for the millions of people who fall into the gap. Over 10 years, the cost to industry for closing the hole could reach $32 billion, according to an estimate by Avalere Health LLC, a Washington-based public-policy firm.

However, the pharmaceutical discount will likely keep seniors from dropping medications. It may also rapidly usher them through the doughnut hole, and back up to spending levels where Medicare coverage of drug costs resumes.

"Anything that gets people through the doughnut hole faster can certainly generate more revenues," said Jack Calfee, a former economist at the Federal Trade Commission. He's now a resident scholar at the American Enterprise Institute, a conservative think tank.

Pharmaceutical companies are currently losing key customers because of the doughnut hole. About 15% of the roughly four million people who fall into this hole stop taking their medications, according to estimates by the Kaiser Family Foundation.

Under the bill passed Thursday, seniors will get a 50% discount on those medicines beginning next year and a $250 rebate this year. Most of the people who hit that gap take expensive medicines to treat cancer, rheumatoid arthritis and anemia or multiple drugs for chronic conditions such as heart disease and diabetes.

Examples of some drugs taken by people who fall into the coverage gap include Abbott Laboratories' rheumatoid arthritis medicine Humira and Novartis AG's cancer treatment Gleevec. Both companies have programs in place to help patients cover the costs of the medicines, which can be in the thousands of dollars a year.

Daniel N. Mendelson, a former associate director at the White House's Office of Management and Budget under President Bill Clinton, said closing the doughnut hole will benefit pharmaceutical firms and lawmakers. The $250 rebate for seniors who enter the gap, which goes into effect once the law is signed, gives lawmakers something to tout on the campaign trail in November.

"The thing about this doughnut policy is that it will be very visible and will be felt by consumers and will go into place before the election," Mr. Mendelson said. "That is significant because there aren't many policies that hit all three of those criteria."‹