US slashes $80bn from drug bill

C&I Issue 13, 2009

An agreement between the US government and pharmaceutical companies will see the cost of brand name drugs cut in half for patients who are part of the government’s Medicare health programme. This will amount to an $80bn hit to the industry over the next 10 years. The hard bargaining by the Senate Finance Committee and the White House over drug costs all feeds into the president’s plans to drive down the cost of health care, while increasing the number of people covered (see page 8).

Arun Ravi, a consultant with the health care group at Frost & Sullivan, says that the pain the industry will feel as a result of these concessions will depend on the drug. Cutting the cost of brand name drugs, which are off-patent or about to come off patent, such as Pfizer’s blockbuster cholesterol drug Lipitor, could be a way of staving off generic competition. The cost reductions could also benefit on-patent drugs by enabling them to compete better with so called ‘me too’ drugs, Ravi adds.

Billy Tauzin, ceo of the Pharmaceutical Research and Manufacturers of America (PhRMA) said: ‘We recognise that a medicine which sits on a shelf out of reach of patients financially doesn’t do anyone any good.’

The agreement will apply to brand name drugs covered by part D of Medicare, which suffers from a ‘doughnut hole’. This gap in coverage can leave moderately ill patients having to pay all their drug costs once they exceed base coverage limits. The Medicare programme covers people over 65, as well as some other groups, such as the disabled.

This agreement represents another boost to Barak Obama’s programme to offer health care to the 47m uninsured US citizens, after Max Baucus, the Senate Finance Committee chairman, said it would be possible to trim $600bn off the cost of health care reform, bringing it down to $1 trillion.

Ravi says that of the health care reforms going through at the moment, those that are most likely to stick include measures to improve clinical outcomes and the IT infrastructure, as well as increasing the use of generics.

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