Doughnut Hole Deal Good for Drug Makers
Under a deal struck with the White House to aid health reform, drug makers agreed in 2009 to begin offering discounts for seniors who fall into the Medicare “doughnut hole” in 2011. The “doughnut hole” coverage gap requires seniors to pay for medications out of pocket after they reach the $2,830 limit. Once yearly spending reaches $4,550 Medicare resumes coverage of most prescription costs. The agreement reached with the pharmaceutical companies is the beginning of an effort to phase out the coverage gap, and requires drug makers to offer 50% discounts on brand name drugs to seniors that are between the coverage limits.
Bloomberg reports that in 2011, pharmaceutical companies are expected to pay out at least $2 billion in discounts. Pfizer, the largest drug company, will be losing less than half of one percent of its annual revenue in the exchange. Other big drug companies will see a similar loss.
Over the course of the ten year deal, drug companies may also see revenues increase since patients who previously fell into the coverage gap would often switch to generics or discontinue taking their prescriptions. Expiring exclusivity rights to some large drugs may also impact the profits so it is difficult to project the impact over the next decade. The deal does appear to be a good one for the drug companies since it is a relatively small loss. Their cooperation defeated other plans to renegotiate Medicare drug prices and potentially import cheaper drugs from outside the U.S.