USA - US$80 billion Deal Reached Between the US Government and Drug Companies

Drug companies have pledged to save the US healthcare system US$80 billion over the next decade, primarily in the form of discounts on branded pharmaceuticals, in a deal agreed on 20th June 2009.

The agreement has been welcomed by President Obama, who called it a “significant breakthrough on the road to healthcare reform”.

The pharmaceutical companies have agreed to a provide a discount of at least 50 per cent to elderly and disabled patients, who face a gap in Medicare insurance coverage when their drug costs reach a certain level, known as the ‘doughnut hole’; no reimbursement is provided for payments between US$2,700 and US$6,154.

The manufacturers’ aim is to fill the ‘doughnut hole’ while subsequently boosting incremental sales. According to a study by the Kaiser Foundation in 2008, about 500,000 Medicare beneficiaries, or 15 per cent, stop using their prescription drugs when in the ‘doughnut hole’. Therefore, the discounts will encourage patients to continue to take their medicines and could, in effect, generate additional sales volume.

The figure of US$80 billion reflects the total projected savings to the healthcare system, from the drug discounts in the Medicare coverage gap, in addition to other concessions which are yet to be specified. There is speculation that there could be additional savings for those on low incomes, but discussions are still taking place between industry officials before the precise details are finalised. The US$80 billion figure translates into around 2 to 3 per cent of US drug spending, according to Deutsche Bank, and the savings will go towards funding President Obama’s proposed overhaul of the healthcare system.

The agreement was made between the Pharmaceutical Research and Manufacturers of the America Industry Association and the Senate Finance Committee Chairman, Max Baucus. Assuming that the drug overhaul legislation becomes law, the agreement is likely to take effect in July 2010.

Further reading - An in-depth review of the US pharmaceutical market, including some background information on the healthcare system, is available from Espicom: The Pharmaceutical Market: USA (published March 2009)