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Closing pharmaceutical loop hole may fill donut hole
By Congressman John Olver (D-MA)
Editor's note: Congressman Olver responded to the following questions about the prescription drug plan Medicare Part D: 1. What should be done so that the government will be required to negotiate a reduced rate for bulk purchase of prescription medications to make them more affordable for seniors; and 2. What can be done to minimize or eliminate the so-called “donut hole” so that seniors will not face a gap in coverage forcing them to pay almost $2,800 for out of pocket expenses?
Since the enactment of Medicare Part D three years ago, I have heard from many seniors in western Massachusetts about the shortcomings of this confusing program. As many are now discovering, the Medicare drug plan was designed so that beneficiaries paying premiums each month receive support with their drug costs until they have spent $2,250, at which point the coverage disappears until spending reaches $5,100. It was estimated that roughly four million Medicare beneficiaries would fall into this coverage gap known as the “donut hole” in the first year that Medicare Part D was offered. While participants are in the donut hole, they must pay for all prescriptions out-of-pocket while continuing to pay the monthly Medicare Part D premiums.
This gap in coverage should be closed, and Democrats believe that direct negotiations with pharmaceutical companies on behalf of Medicare Part D beneficiaries may work toward closing it. That’s why Democrats made it a priority in the first 100 legislative hours of the new Congress to require the Secretary of Health and Human Services to negotiate with drug companies. Negotiations would allow Medicare to harness the bargaining power of over 40 million Medicare beneficiaries to achieve significant savings.
On January 12, 2007, the House of Representatives passed a law by a vote of 255-170 requiring direct negotiations with pharmaceutical companies. While the bill has not yet been taken up by the Senate, Democrats are hopeful that it will pass, be enacted, and that the savings will be used to help close the donut hole.
This approach makes good sense. The federal government is already in the business of negotiating for lower drug costs. The Department of Defense (DoD) and Veterans Affairs (VA) have been doing it successfully for years. Using the bargaining power of soldiers and veterans and the expertise of DoD and VA medical professionals, those Departments negotiate with multiple companies offering various drug therapies to drive overall treatment prices down for their patients. One study by Families USA, a Washington, DC-based think tank, found the lowest price offered by any Medicare prescription plan is at least 48% higher than the lowest price available through the VA. Medicare recipients are clearly paying too much.
Research points to the potential for significant savings if Medicare was able to negotiate for lower drug costs. A study by the Center for Economic Policy and Research, another think tank in Washington, projects potential total savings of $600 billion between 2006 and 2013 if Medicare was allowed to directly offer a drug benefit and negotiate prices with pharmaceutical manufacturers. This savings could be instrumental in helping to close the donut hole.
Many seniors are living on fixed incomes. With drug prices that continue to increase at twice the rate of inflation and a drug plan in place that does not offer coverage at all levels of need, something must be done. Americans who have worked their entire lives should not find themselves struggling to afford prescription drugs when simple changes could make these drugs much more affordable.
Congressman John Olver serves the First Congressional District.