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Obama, Democrats Cheer Announcement of Drug Savings for Federal Programs

By Ceci Connolly
Washington Post Staff Writer
Saturday, June 20, 2009 9:02 PM

President Obama and Democratic lawmakers scouring for money to reduce the cost of comprehensive health-reform legislation cheered news today that drugmakers have agreed to squeeze $80 billion out of revenue over the next decade.

Leaders of the industry's lobbying arm, the Pharmaceutical Research and Manufacturers of America (PhRMA), voted yesterday to voluntarily trim prices on medications sold to seniors, the disabled and others enrolled in government health programs. The agreement was officially announced today. It was not clear how much of the savings would accrue to the government side of the ledger and how much would represent lower out-of-pocket payments for consumers.

"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 December," Obama said in a statement this afternoon. "This is a tangible example of the type of reform that will lower costs while assuring quality health care for every American."

Though many of the details remain unresolved, Democratic leaders hope the accord will provide a jolt of energy to the difficult task of writing and enacting legislation that would have an impact on more than one-sixth of the economy and affect virtually every American in direct, personal ways.

Industry officials said today that the offer is contingent upon -- and intended to be part of -- broad changes in the health-care system. PhRMA has advocated legislation that requires every American to have health insurance, a change that would surely produce tens of millions of new customers for the industry.

Recent reports by the Congressional Budget Office have estimated that it could cost as much as $1.6 trillion to extend health coverage to the nation's 46 million uninsured and to implement other changes intended to modernize the health-care system. No one from the White House, the industry or the Senate Finance Committee could say today exactly how much of the $80 billion offer would be directed toward that expense.

"There are going to be significant scoreable savings for the federal government," said Ken Johnson, a spokesman for PhRMA.

If health-care 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 $2,700 in drug expenses, until reaching an outer spending limit of $6,100.

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. In 2008, U.S. pharmaceutical sales exceeded $291 billion, though the industry has seen growth slow in recent years as more patients turn to cheaper generic alternatives.

"This new coverage means affordable prices on prescription drugs when Medicare benefits don't cover the cost of prescriptions," said Senate Finance Committee Chairman Max Baucus (D-Mont.), who made the formal announcement of the agreement today.

Sources close to the talks between the industry, the administration and Senate officials said the final agreement is likely to include adjustments to the rebates drugmakers give for medications purchased through the Medicaid program or those for seniors enrolled in Medicare managed-care plans.

The move by drug manufacturers 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.

"Today marks an important first step toward our shared goal of providing high-quality, affordable health care to everyone in America," said W.J. "Billy" Tauzin, president and chief executive of PhRMA.

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. As a result of that program, some patients who received deeply discounted medications through Medicaid moved to Medicare, which has generally paid higher drug prices.

"We're simply going to ask the pharmaceutical companies to pay us back the money," Waxman said during a news conference.

AARP, the lobbying group for seniors with 40 million members, has long advocated expanding the Medicare drug benefit to fill the coverage gap. AARP Executive Vice President Nancy LeaMond said last night that while the organization intends to study the details of the agreement, it is heartened by efforts "ensuring that older Americans have access to the prescription drugs they need."

A recent Gallup poll found that the pharmaceutical industry remains unpopular. Asked whom they trust on the question of health-care reform, 40 percent of Americans chose drug companies. Doctors scored 73 percent and Obama 58 percent.

The House draft bill leaves unanswered critical questions about how it would be paid for and by whom. The bill would give discounts to low-income workers and offer a nonprofit insurance program run by the government to compete with the private market.

Rep. John D. Dingell (D-Mich.) said House leaders remain committed to the public option despite strenuous objections from Republicans and some moderate Democrats.

"The only alternative to this that I see is counting on the insurance companies to fix the problems," he said during a news conference yesterday. "Well, they've had 50 years to do it and more, and I can tell you that that's a terrible thought to me."

The industry quickly fired back, saying the public plan "would dismantle employer-based coverage, add additional liabilities to the federal budget, and turn back the clock on efforts to improve the quality and safety of patient care."

Under the House bill, insurers would be prohibited from denying coverage because of a person's health, and most businesses would be required to provide insurance to workers or contribute 8 percent of their payroll.

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