After Agreeing To Reduce Drug Prices, PhRMA Intimidates Lawmakers Who Support Drug Rebates

Since agreeing to voluntarily reduce drug prices by “as much as $80 billion worth of discounts,” Big Pharma has embarked on a campaign to prevent moderate House Democrats from supporting a measure that would ensure that savings are actually realized. The POLITICO’s David Rogers has the scoop here, but suffice it to say, this rather public intimidation effort casts serious doubt over whether the industry ever plans to realize its voluntary pledge.

The background is rather straightforward. Back in 2003, the Medicare part D legislation moved the six million Americans who were eligible for both Medicare and Medicaid into the Medicare part D program. This created a windfall for the industry. Whereas Medicaid obtained an average discount of about 34 percent from pharmaceutical companies that chose to participate in the Medicaid program, “the average discount obtained by the Part D plans was 14 percent,” according to a report issued by Rep. Henry Waxman (D-CA).

“Under Medicare Part D, the six million dual eligible beneficiaries can take the same drugs they got under Medicaid. The only difference is that the federal taxpayer is now paying 30% more. Add it up, and it amounts to a drug manufacturer windfall worth at least $3.7 billion dollars in just the first two years of the Part D program” Waxman explained:

The drug companies are making the same drugs. They are being used by the same beneficiaries. Yet because the drugs are being bought through Medicare Part D instead of Medicaid, the prices paid by the taxpayers have ballooned by billions of dollars.

Now, if drug manufacturers provided the Medicare Part D program with the same prices that Medicaid receives, “these drug costs could be reduced by as much as $86 billion” over 10 years. Waxman’s legislation would effectively reinstate the rebate for the 6 million who were moved out of Medicaid and, in the process, save taxpayers billions of dollars. And for the industry, that’s precisely the problem. Rogers explains that “PhRMA sees any rebates as a big step backward. In making its deal with Baucus, the industry believes it won a commitment from the senator that he won’t sign a final House-Senate conference report that includes what Waxman wants.”

In other words, PhRMA is only comfortable embracing imaginary voluntary savings. Their agreement with Baucus encourages them to issue coupons or rebates to seniors for “unspacified discounts.” The savings “would benefit Medicare beneficiaries directly” and it’s unclear “what portion would accrue to the federal treasury.” Waxman’s bill would generate guaranteed savings that could help finance health care reform.

The two agreements have different winners and losers to be sure, but any health reform legislation should hold the industry to its word. One option is to design a policy that would trigger Waxman’s rebate proposal if the industry fails to produce the $80 billion it has pledged. After all, these days, triggers seem to be all the rage in health care policy.