WASHINGTON — Drugmakers led by Pfizer, AstraZeneca and Bristol-Myers Squibb may provide more than $2 billion in discounts to senior citizens next year under an industry arrangement with the White House, according to data that provide the first look at the worth of the agreement.
The deal was struck between President Barack Obama and drugmakers prior to approval of the health law in March. Pfizer, the world’s largest drug company, will cede less than half of 1 percent of its $50 billion in annual revenue under the pact, according to data compiled by Bloomberg from a Sept. 24 report by Medicare. The industry overall generated $288 billion in sales in 2009, said PhRMA, the Washington-based trade group.
Under the health law, Medicare enrollees who fall into a coverage gap known as the “doughnut hole” will get 50 percent off the price of brand- name medicines. In return, pharmaceutical companies avoided policy debates over drug importation and price cuts by Medicare, the U.S. plan for the elderly and disabled.
“This was a good deal for pharma,” said Les Funtleyder, a health care analyst with New York-based Miller Tabak & Co.
The data “disputes the narrative that health care reform is bad for pharmaceuticals, and as more data emerges I think you’re going to see that narrative play out across the health industry,” he said.
Drugmakers could make back some of the revenue they’re giving up through the discounts, Funtleyder said. Provisions in the law that expand insurance coverage will give brand-name pharmaceutical companies about 32 million potential new customers, according to Congressional Budget Office estimates.
Before the discounts were offered, Medicare beneficiaries who fell into the coverage gap often switched their brand-name drugs to generics or stopped taking medications altogether. The discounts make it more likely this group will continue taking brand-name drugs, Funtleyder said.
The doughnut hole is a feature of Medicare drug coverage that will gradually disappear during the health overhaul. Currently, Medicare pays for senior citizens’ drugs until the annual cost reaches $2,830.
The beneficiary at that point pays all costs until total out-of-pocket spending reaches $4,550. Beyond that point, Medicare covers most costs.
About 3.4 million people, or 14 percent of those who have Medicare drug plans, fell into the doughnut hole in 2007, the most recent year for which data are available, according to the nonprofit Kaiser Family Foundation in Washington.
Total spending by Medicare beneficiaries in the doughnut hole was $4.9 billion in 2009, according to recently released Medicare data. Assuming spending remains stable, drugmakers would wind up discounting about $2.5 billion in 2011.
