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Details on Medicare Prescription Drug Deal Remain Murky

By Alex Wayne

June 22, 2009 -- Details of an agreement the White House announced this weekend to reduce prescription drug costs for seniors remain murky, leaving unclear how much money the deal might provide for a health overhaul.

Senate Finance Chairman Max Baucus , D-Mont., reached the agreement with the Pharmaceutical Research and Manufacturers of America (PhRMA) in recent weeks, after health care industry groups promised the White House last month they would come up with proposals to reduce the growth of health care spending.

Under the deal, drug manufacturers will give most seniors a 50 percent discount on brand-name drugs when they enter a gap in Medicare’s prescription drug coverage known as the "doughnut hole." The gap applies to seniors who require more than $2,100 in prescription drugs per year. Under current law, they must pay full price for the drugs until they reach $6,100 in spending, after which Medicare covers 95 percent of the cost.

"This is a significant breakthrough on the road to health care reform, one that will make the difference in the lives of many older Americans," Obama said Monday during an event trumpeting the deal.

Lawmakers intentionally created the "doughnut hole" to hold down the cost of the prescription drug benefit when it was enacted in 2003. Ever since, the coverage gap has been a nuisance for seniors and their advocates in Washington. Members of Congress regularly make proposals to close the gap — something the Congressional Budget Office estimates would cost $134 billion over the next ten years.

Baucus and PhRMA say their deal totals $80 billion over ten years. But it is unclear how that number is derived. It is also unclear what policies the agreement may cover beyond discounts for seniors. Baucus and his committee have been considering a number of ways to pay for a health overhaul that might affect drug companies, including an increase in the rebates companies are required to provide Medicaid when it buys drugs.

PhRMA senior vice president Ken Johnson made clear the association expects the $80 billion to cover any savings Baucus might seek from the industry.

"We have an $80 billion agreement with respect to health care reform," Johnson said.

Baucus aides did not specifically respond when asked if Baucus had promised drug companies that he would not seek more than $80 billion from them toward the cost of an overhaul.

"These conversations resulted from the industries going to the White House and volunteering to save $2 trillion over 10 years," one Baucus aide said. "Following that announcement, Sen. Baucus invited those groups to his office and asked them to put pen to paper and tell him exactly what they were willing to do."

The agreement may be a win for PhRMA if it limits the cuts in government reimbursement the association's members might suffer under Baucus’ overhaul bill while also casting drug companies in a positive light.

And the agreement could be important to Baucus and other Democrats in winning public support for an overhaul. A poll last week by Diageo/Hotline showed that people over age 65 are less supportive of a health overhaul than any other age group, possibly because there has been much talk in Congress about paying for an overhaul in part by cutting Medicare spending.

"I think what they’re reading about are big Medicare savings, and they're worried about the possible impact," said John Rother, policy director at AARP, which supports the deal with PhRMA. "Obviously something like this will go a long way to building a basis for enthusiasm and support among the 65-plus population."

But any of the $80 billion promised by PhRMA that goes to seniors in the form of drug discounts can’t be counted toward paying for a health overhaul, which may cost $1 trillion or more.

"There's no savings to the federal government involved in these discounts," Rother said. "If you're going to ask the pharmaceutical industry to help finance health care reform, you’re going to need something more than this discount program."

Johnson, of PhRMA, said the agreement includes additional provisions, many of which he said would save the government money. "It's still too early to tell what the final numbers will look like, but I suspect that more than half of the $80 billion will be scoreable savings" for the government," he said.

He declined to detail provisions other than the discounts; the agreement, he said, has to be scored by the Congressional Budget Office before it becomes final.

Drew Armstrong contributed to this report.

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