If you're familiar with Medicare Part D (either a beneficiary with a Part D plan, a family member of a Part D beneficiary, or someone involved in providing Part D services to beneficiaries) you know how the Part D benefit can be confusing. Well, 2011 will offer a whole new set of changes to the program as a result of some healthcare reform provisions. I don't have enough finger strength to type them all, but here's one most people with or involved in Part D should be aware of:
"Filling" the Coverage Gap
The infamous donut-hole... Since inception in 2006, the Coverage Gap has been a part of the standard Part D benefit. In short, after an small initial deductible and then a coverage period, beneficiaries reach a certain drug spend and then are responsible for 100% of their drug costs (no payment from Part D) until they reach a "catastrophic" level. The coverage gap is in fact basically a "delayed" deductible. Most are familiar with deductibles at the beginning of a coverage year, but in order to allow access to coverage sooner for Part D beneficiaries, most of the deductible was placed in the middle of the benefit. The gap also made the benefit a lot less expensive for the government, and, equally as important, gave seniors a GREAT reason to convert to less expensive generic medications when they were footing the bill during this part of the plan.
In 2011 the coverage gap changes dramatically, especially for brand-name drug products. Due to a "deal" brokered between PhRMA, the drug manufacturers' powerful association and lobbying group, and the Obama administration during the battle for healthcare reform legislation, the brand drug manufacturers agreed to an $80 Billion concession, basically in exchange for being pretty much left out of the rest of healthcare reform. In fact, PhRMA was one of the first stakeholders to the table. (smart in my opinion)
Beginning in the 2011 Part D plan year, eligible brand drug products will experience a 50% discount for beneficiaries in the coverage gap. Well, it will be pretty close to 50%... Unfortunately, the official definition of the cost to be discounted did not include common "dispensing fees" negotiated between pharmacies and Part D plans (or their claims processors). In many cases these fees are not very large (a few dollars) but this amount will not be discounted. So, beneficiaries will receive a discount of 50% on the "ingredient cost" but will still have to pay 100% of the dispensing fee on top of that. This new discount will continue on from 2011 forward, assuming this portion of health reform is not, at some point in the future, repealed or adjusted. (seems unlikely to me, given the popularity of an increase in benefit like this)
For the generic side of the house, there is also a discount in the gap, though not as large at first. Beginning in 2011, generics will experience a discount in the gap of 7%, and this discount will increase annually by 7% until the discount reaches 75%. (yeah, I know the math doesn't work - it jumps more than 7% the last year) It will take 10 years total for the discount to reach 75%. Again, the dispensing fee is not included in the discount. This discount is not funded by manufacturers, however, and is actually a change to the benefit, with Part D (shared between the feds and Part D plan sponsors) picking up the tab on this one.
The unfortunate thing for the overall healthcare system (but a good thing for brand manufacturers) is that in the next few years there will be a negative incentive to switch to newly available generics during the coverage gap. It is common for new generics to come on the market with only 1 (actually 2 with authorized generics, but that's a different post) generic manufacturer permitted to sell the product for a 6 month period. During this time, historically, generic manufacturers who have this exclusivity will price their product very close to the innovator (brand). A discount of 10-20% is not uncommon. If the brand experiences a 50% discount, and the generic a 7-21% discount (2011-2013), and the generic is priced only 10-20% below the brand, the brand will be less expensive to the Part D beneficiary during the gap.
Granted this is likely only to occur on products where a generic manufacturer has the 6 month generic exclusivity, and assumes that the generic manufacturer does not alter the logic on pricing during that period. Once more competition enters the market (more generic manufacturers) prices quickly drop. Nice how market forces work... However, given that the 1st generic manufacturer makes a TON of $$ during the exclusivity period, I would expect this initial pricing trend to continue.
Generics, in general, save the healthcare system (patients and third-party payers) a lot of money over brand products, so anything that undermines the swtich to generics will, in the end, cost the system more money in drug cost.
But, if you own some stock in a brand manufacturer, it's a good thing.
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