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Health-Care Overhaul 2010

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Under Agreement, Medicare Would Pay Less for Drugs

FILE - In this April 2, 2009 file photo, Senate Finance Committee Chairman Sen. Max Baucus, D-Mont., left, and the committee's ranking Republican Sen. Charles Grassley, R-Iowa talk on Capitol Hill in Washington. (AP Photo/Susan Walsh, FILE)
FILE - In this April 2, 2009 file photo, Senate Finance Committee Chairman Sen. Max Baucus, D-Mont., left, and the committee's ranking Republican Sen. Charles Grassley, R-Iowa talk on Capitol Hill in Washington. (AP Photo/Susan Walsh, FILE) (Susan Walsh - AP)

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By Ceci Connolly
Washington Post Staff Writer
Saturday, June 20, 2009

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.

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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.

"We applaud the president's efforts on health-care reform and are pleased to participate to expand access to medicines to seniors and disabled persons," said Kevin Sharer, a former chairman of PhRMA who is president and chief executive of Amgen, a major biotech drug manufacturer.

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 agreement comes at a critical juncture in the health-reform debate as lawmakers this week received a series of sobering reports indicating that it will not be easy to find the money to pay for an overhaul of the nation's health-care system. The concessions by drug manufacturers would essentially lower the cost of reform by a small fraction of the $1 trillion needed.

The move by drugmakers may have been intended to forestall more severe cuts. In his radio and Internet address last week, Obama called for extracting $75 billion in savings, though industry sources said at the time that the White House initially set a target of $100 billion.

"There was a great deal of sticker shock" around the $100 billion figure, said one company executive who was not authorized to speak publicly.

Drugmakers face deep skepticism among Democratic leaders, particularly in the House, where officials yesterday unveiled a draft bill that would mandate some of the same changes the industry said it hopes to accomplish voluntarily.

The House bill aims to provide insurance to virtually every American by asking employers and taxpayers to cover those who cannot afford it themselves. It would impose tight restrictions on insurers and create a nonprofit insurance program run by the government.

House Energy and Commerce Committee Chairman Henry A. Waxman (D-Calif.) singled out drug manufacturers, saying the legislation attempts to recoup the "windfall" that companies received when Congress created the Medicare prescription drug benefit, which took effect in 2006.


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