Windfall for drug industry raises questions
BY TONY PUGH
Knight Ridder Newspapers
WASHINGTON - The new Medicare drug benefit will give drug companies up to $2 billion in extra profits this year because they're no longer required to pay rebates on drugs bought by the government for the elderly poor.
The hefty windfall raises new concerns that the Bush administration won't fully realize its promises of lower drug prices in the troubled new program.
The boost in profits comes from a shift in the drug coverage of 6.4 million poor and elderly people from Medicaid to the new Medicare drug benefit. Unlike Medicaid, which requires drug companies to charge their lowest or "best price" for medications, the Medicare program relies on competition among private drug plans to keep prices low. By eliminating the need to discount drugs for the government, the industry can now pocket the savings.
"The net effect over 10 years is probably closer to $40 billion in extra profit," said Stephen Schondelmeyer, a pharmaceutical economics professor at the University of Minnesota.
A little-known study by the Prudential Equity Group from June 2005 estimated that the makers of three anti-psychotic medications stand to benefit most from the change, taking in roughly $1.1 billion in new profits on products used by the 6.4 million who are Medicare's most poor and frail patients.
Experts say drug prices in the Medicare program will be higher this year than prices under Medicaid because the private Medicare drug plans won't likely match the price discounts achieved by Medicaid, the joint state and federal health program for the poor.
But the new profit estimates and the higher drug price projections have rekindled accusations that the Medicare drug benefit enriches drug companies at the expense of U.S. taxpayers.
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