Drug Industry Whines about Losing Small Percentage of Profits from Medicare

Tuesday, February 19, 2013

Following President Barack Obama’s State of the Union address, drug manufacturers went into PR overdrive to complain about a proposed change to the Medicare prescription drug program that allegedly would cost companies too much money.


At issue is the Medicare Part D drug program that was created in 2006 to cover beneficiaries eligible for both Medicare and Medicaid. Before Part D came along, drug companies were required to provide rebates to the government to help pay for medications for so-called dual eligible beneficiaries.


But eliminating the rebates has proved costly to the government, which is why Obama wants Congress to reinstate them.


The Congressional Budget Office has said the switch would save billions of dollars in government spending every year, according to Wendell Potter, a former healthcare industry executive who now writes for The Center for Public Integrity.


“That’s because even though dual eligibles comprise only 20% of the total number of people enrolled in Medicare, they account for almost a third of total Medicare spending,” Potter wrote.


But the pharma industry, which makes about $300 billion annually in the U.S. alone, claims the rebates will eat into their profits.


Potter contends the losses would prove minimal, compared to just how much drug companies are earning. He cited Damien Conover, an analyst with the Morningstar investment research firm, who told Reuters that bringing back the rebates might cost the drug companies 2% to 7% in profits.


“I added up the 2012 profits of nine of the biggest drug makers and came up with about $60 billion. Even if they had to give up 7 percent of that to help the government pay for prescriptions for the sickest and poorest of the Medicare population, they would still have profits of more than $55 billion. And that’s just for nine companies,” Potter says.

-Noel Brinkerhoff


To Learn More:

Drug Firms Say No To Rebates, Despite Billions in New Revenue from Part D (by Wendell Potter, Center for Public Integrity)

Private Insurance Companies Cost Medicare $34 Billion This Year (by David Wallechinsky, AllGov)

Prescription Drug Prices for Seniors Rising Faster than Inflation (by Noel Brinkerhoff, AllGov)


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