Drugmakers agree to reduce medication costs for seniors

Washington -- President Obama announced that a key Democratic lawmaker had made a deal with brand-name drug manufacturers to decrease seniors' drug spending by $80 billion over the decade, in part by reducing the amount that Medicare Part D enrollees are expected to pay during a gap in government coverage.

Obama unveiled the agreement by the Pharmaceutical Research and Manufacturers of America at a June 22 White House event. It also featured Senate Finance Committee Chair Max Baucus (D, Mont.), who brokered the deal with PhRMA.

Few of the specific details of the agreement were made immediately available after the announcement, but one major element will be additional assistance for seniors who fall in the Medicare drug benefit's "doughnut hole." This coverage gap occurs after initial government Part D subsidies run out and before a catastrophic benefit kicks in, during which time enrollees must pay all of their drug costs in addition to any monthly premiums. PhRMA has pledged to provide seniors with a 50% discount on any brand-name drugs that they need during the coverage gap.

"Key sectors of the health care industry acknowledge what American families and businesses already know -- that the status quo is no longer sustainable," Obama said at the White House event. "The agreement reached today to lower prescription drug costs for seniors will be an important part of the legislation I expect to sign into law in October."

AARP also praised the development and pledged to continue its effort to lower drug costs for seniors even more.

"Too many Americans who fall into the coverage gap stop taking their medications because they simply cannot afford them," said A. Barry Rand, AARP's CEO. "They will now have a new opportunity to lead a healthier life."

However, it is unclear how much of the $80 billion savings would accrue to the government and how much would go to seniors alone. The coverage gap was engineered by Congress to discourage enrollees from running up unnecessary drug costs as a way to trigger the catastrophic benefit, under which Medicare pays nearly all of an enrollee's drug bills. Some congressional aides expressed concern that the 50% discount could prompt more seniors to hit the catastrophic limit, thus costing the federal government more.

Aides said the Congressional Budget Office would determine how much of the $80 billion could be counted as federal savings, a determination that could slightly lower the cost of pending health reform bills that are expected to cost $1 trillion or more over 10 years.