Thursday, December 17, 2009

Expensive Jelly. Who Pays and How Much for Filling the Donut Hole?

I previously estimated that the closure of the Medicare Part D donut hole was worth close to $8 billion per year in additional revenue to the Pharma industry.  This presumed that Pharma's commitment of $80 billion in part to offset costs in the Donut Hole via a drug discount of 50% wouldn't be an opened ended commitment and it would end once the Donut Hole was actually closed.  My thinking was that once the Donut hole was closed, and the $80 billion commitment rendered (my estimates of filling the Donut Hole are lower), Pharma would benefit for years to come based upon the "insurance effect" of the closure of the Donut Hole.  However this may not be the case.  This morning there seems to be some confusion regarding the exact nature of the earlier commitment and  the possibility of a "new deal".

Details of the "deals" are very sketchy as I pen this blog (old deal? here).  However, here's what I understand.  The "new deal" appears to be part of a compromise that occurred in the Senate surrounding Dorgan's Drug Reimportation amendment.  Just after the Dorgan amendment was defeated, Senator Reid announced that he would support a full closure of the Donut Hole in the House/Senate Conference Committee following passage of the reform bill in the Senate.  Up until Reid's statement, unlike the the House's version of the legislation, the Senate only slightly filled the Donut Hole (eliminating $500 of it).  It appears to have been a "Jelly for the Donut Hole in exchange for no drug imports" deal.

Also, late yesterday, there were vague reports that the cost of closing the Donut Hole would now be borne by the Pharmaceutical Industry generating confusion over the duration of it's commitment and if it was strictly for the period over which the Donut Hole was closed.  The original deal was supposed to be a 50% discount for drugs in the unclosed Donut Hole.  There were also reports that the industry would pony up an additional $20 billion.  Some sources said the additional $20 billion would not come from manufactures but from PBMs.

So this morning I am left with one hand on my coffee mug and the other scratching my head.  Key questions on the table this morning about the "new deal"
  1. How long will Pharma be contributing to the Donut Hole?  Until it's closed as originally thought or for years after it is closed?
  2. Exactly how much will Pharma contribute to the Donut Hole and/or it's closure?
  3. Will other industry players like PBMs be asked to ante up as well?
I'll update this blog as new details come forward.


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