Poorly written Republican drug bill hurts drug companies, helps patients

The drug companies who thought they were going to get a whole new set of customers who would have to pay full undiscounted price for their products has found a major flaw in their plans. 'The donut hole' of non coverage is driving patients to buy generic drugs instead of those still under patent and much higher in price.

The Republicans, attempting to pass themselves off as 'Compassionate Conservatives' and retain control of Congress in 2004 passed the Medicare Drug Bill in 2003 so as to avoid the anger of seniors who tend to vote their views and who had no access to insurance covering prescription drugs. Besides being passed one vote, 216-215, in violation of normal Congressional time limits and after some of the most egregious arm-twisting, was recognized as a major victory for the drug companies and their lobbyists. Both the House and Senate passed versions of the Bill that prevented the federal government from using the purchasing power of 40,000,000 patients and negotiating lower prices for the drugs as both Medicaid and the Veteran's Administration already do. It was a great political victory for the drug companies and their lobbyists.

Or maybe not.

The bill as passed was considered extremely expensive, even before it was learned that the Bush administration had prevented Bill Foster, the actuary who knew the real cost estimates, from reporting the $139 billion higher cost to Congress. Because of the anticipated expense of the program it had a strange feature known popularly as "the donut hole." After an initial annual deductible, Part D. pays approximately 75% of the cost of medications until the total costs of medications reaches $2,510 in 2008. After that, even though the beneficiary must still continue paying the monthly premium, Part D. does not cover any further medications until the total out-of-pocket expense reaches $5,726. The $2,510 is based on total drug costs, but the $5,726 is based on the out-of-pocket expenses incurred and does not include drug costs previously paid by the insurance.

In other words, the coverages stops at the total drug costs of $2,510, a limit that includes the amount of reimbursement for drugs, but does not again start until $5,726 in out-of-pocket expenses (which does not count the amount paid by the insurance) is reached. Let's look at some numbers.

Description	Out-of-pocket	Reimburse	Total drug Cost
Annual Deduct	180
CoPay+Reimbur	628	1702
End init coverage			2,510
Subtotals coverage	808	1,702	2,510
Donut hole	4,908	0	7,429

[This is an illustrative example and uses amounts that may not apply to all Part D recipients.]

The $7,429 is the total drug cost less the reimbursement of $1,702. In other words, the donut hole is all drug expenses between $808 of initial out-of-pocket expenses up to the total out-of-pocket drug expenses of $5,726. That is $4908 in drug expenses not covered by Part D of Medicare.

In addition, while paying those drug expenses it is also necessary to pay the monthly premium of $24.80 or more. That is another $298 per year. Only after drug expenses have passed $7,429 does Part D begin paying approximately 95% of the costs of medication.

The trick to using Part D is obvious. Do not spend more than $2,510 in drug costs. Some people just quit taking medications when the coverage runs out at the beginning of the donut hole. But what a lot of people have begun doing is switching to generic medications. Wal-Mart is selling a lot of them now for $4 a month.

Don't wait until you hit the donut hole. Talk to your doctor, get generics instead of medications still under patent protection, and you may never reach the donut hole. And generics usually are as effective as the newer prescriptions.

Who gets hurt? No one, really. A prescription drug benefit has been needed as part of Medicare for decades. It's just that the Brand name drug companies are finding that their profits are lower.

The interesting thing as that this trend among the seniors is retraining health care providers to discuss price and choose generics whenever possible, so the trend is likely to spread to all patients. The result?

Health care costs will go down a little. More interestingly, brand name drug manufacturer's profits will drop. That's because the value of their patents is going to drop and they are going to have to actually compete for profits with the makers of generic drugs.

This really isn't what the Brand Name drug manufacturers paid their K-Street lobbyists to achieve.

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[Note: the premiums and copays used above are the lowest possible. High income people on Medicare Part D may find their own expenses are a little higher.]