Obama Announces Agreement With Drug Companies

President Barack Obama says the pharmaceutical industry's agreement to help close a gap in Medicare's drug coverage will make health reform more possible. Video by AP
By Michael A. Fletcher and Ceci Connolly
Washington Post Staff Writers
Monday, June 22, 2009; 1:40 PM

President Obama today announced an offer by drug manufacturers to contribute $80 billion over the next decade to narrow the controversial gap in Medicare prescription drug coverage, a deal the president said moves the nation a step closer to comprehensive health-care reform.

"This is a significant breakthrough on the road to health-care reform, one that will make the difference in the lives of many older Americans," Obama said as he made the announcement from the White House.

The president was joined at the White House today by Barry Rand, head of the influential senior citizens' advocacy group AARP, which endorsed the deal.

"This is an early win for reform. It's a major step forward," Rand said.

Obama reiterated his vow to restructure the nation's health-care system to expand care and slow the increase in long-term expenses, despite mounting concerns about the initial costs and structure of various plans that have been put forward.

"To those who -- here in Washington -- who've grown accustomed to sky-is-falling prognoses and the certainties that we cannot get this done, I have to repeat and revive an old saying we had from the campaign: 'Yes, we can,' " Obama said. "We are going to get this done."

After weeks of secret talks, the pharmaceutical industry trade group voted Friday to dedicate $80 billion to lowering the price of medicines sold to seniors and the government. The unusual offer by the Pharmaceutical Research and Manufacturers of America (PhRMA) is part of its effort to convince skeptical lawmakers that it backs major health-care legislation.

Although the agreement represents a fraction of the total cost of health-care reform, it has been managed for maximum public relations exposure.

News of the PhRMA vote leaked out Friday night. On Saturday afternoon, Senate Finance Committee Chairman Max Baucus (D-Mont.) put out a news release announcing that he had "secured an $80 billion commitment" from drugmakers. Yesterday, AARP let it be known it supported the action. Today, cameras were invited to record the White House ceremony celebrating the accord.

When the Medicare prescription drug benefit approved by Congress went into effect in 2006, it left a coverage gap that charges seniors the full cost of medications once a patient has received $2,700 worth of drugs, until the total reaches about $6,100. At that point, "catastrophic" coverage kicks in and covers nearly all drug expenses.

"The existence of this gap in coverage has been a continuing injustice that has placed a great burden on many seniors," Obama said over the weekend.

Under the proposal, seniors who fall into the coverage gap known as the "doughnut hole" would pay half price for all brand-name medicines. The discounts could save 3.5 million retirees up to $1,700 a year, according to AARP. In addition, the full price of the drug would count toward a person's out-of-pocket total, thus maximizing the insurance benefit.

"Too many Americans fall into this coverage gap, and they stop taking their medication, because they really simply can't afford it," Rand said. "But today, now, they will have a new opportunity to lead a healthier life."

Some wealthy beneficiaries -- perhaps those earning more than $85,000 a year -- would probably continue to pay full price, according to an industry source.

It was not immediately clear how much of the $80 billion would benefit Medicare beneficiaries directly and what portion would accrue to the federal Treasury. The offer is contingent upon enactment of a sweeping health-system overhaul.

For the past week, Obama and congressional Democrats have struggled to overcome anxiety that extending health coverage to tens of millions of uninsured Americans might cost the nation more than $100 billion a year. While surveys show a majority of voters are eager for broad changes to the nation's health system, polls also indicate growing unease over the rising deficit and the financial burden of a series of industry bailouts.

Several senators appearing on talk shows yesterday voiced concerns about the health costs and challenged Obama's support for a government-run insurance program that would be created to compete with private insurers.

"So we're in the position of dialing down some of our expectations to get the costs down so that it's affordable and, most importantly, so that it's paid for," said Sen. Charles E. Grassley of Iowa, the ranking Republican on the Finance Committee.

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