When it comes to prescription drugs, President Obama’s deficit-reduction plan follows Willy Sutton’s famous advice to “go where the money is.” Of the proposed $580 billion in total savings over 10 years, more than a quarter comes via three important proposals targeting the high cost of prescription drugs.
The biggest chunk of savings, worth $135 billion – nearly a fourth of the President’s total –would come from extending drug rebates to the ‘dual eligible’ population — primarily low-income seniors or people with disabilities — who qualify for both Medicare and Medicaid. This change would reverse the multi-billion dollar windfall that drug companies received when drug benefits for these patients were shifted out of Medicaid under Medicare Part-D implementation in 2006.
In a 2008 report, the House Committee on Oversight and Government Reform reported that in the first two years under Medicare Part-D, drugmakers had made $3.7 billion more by avoiding rebate payments for these dually eligible patients. Rep. Henry Waxman (D-CA) stated “This is an enormous giveaway…and it has absolutely no justification. The drug companies are making the same drugs. They are being used by the same beneficiaries. Yet because the drugs are being bought through Medicare Part D instead of Medicaid, the prices paid by the taxpayers have ballooned by billions of dollars.”
Two other proposals in Obama’s plan — a ban on pay-for-delay drug deals, and a reduction of the exclusivity period for brand-name biologics — aim to reduce costs by promoting a more competitive marketplace.
The Federal Trade Commission (FTC) and leaders in Congress have championed a ban on pay-for-delay settlements, the sweetheart deals where brand name drug makers pay their competitors to delay selling a generic version of their drug. FTC Chairman Jon Leibowitz applauded the inclusion of a pay-for-delay ban in the White House’s deficit reduction proposal. “Curbing anticompetitive pay-for-delay deals in the pharmaceutical industry…would reduce the deficit by billions of dollars over the next decade without raising taxes or cutting critical programs,” he said. “This should be a painless choice for the deficit reduction committee.”
And Obama’s proposal to reduce brand-name “biologic” exclusivity from 12 to seven years is also sensible. Biologic drugs, made through a biologic rather than chemical process, can be complex medicines that patients desperately need. But they can also be extremely expensive, costing hundreds of thousands of dollars a year for the treatment of a single patient. Allowing competition from generic versions to start five years earlier could yield significant savings, while also helping improve patient access to needed medicines.
Not surprisingly, the brand-name drug industry has opposed these proposals. First, they warned that extending the drug rebates could cause job losses in their industry, undermining in some way the benefits of deficit reduction. They must be hoping the public will overlook the many-year trend to relocate manufacturing and research jobs overseas — the industry’s business model in search of lax or non-existent regulatory standards coupled with cheap labor. But it’s hard to miss given that the drug industry has led all sectors in lay-offs as recently as this past July, for this and other reasons.
But assuming we were fooled and bought the argument, how should the public respond? Is it good policy to waste public dollars by letting an industry charge one government program millions more than another program? Obviously not.
But reclaiming and redirecting dollars wasted on an inflated pharmaceutical industry could increase our public investment in science research, creating science and research jobs, keeping us competitive in the global economy, and promoting patient’s long-term interests in finding new cures.
— Marcia Hams, Director Prescription Access and Quality — Wells Wilkinson, Director Prescription Access Litigation