By Bill Berkrot and David Morgan
Feb 13 President Barack Obama's decision to
spotlight drug rebates as a way to save money on Medicare is
likely to be opposed by the pharmaceutical industry, which could
potentially lose billions of dollars in profits.
In his annual State of the Union speech on Tuesday, Obama
said he would "reduce taxpayer subsidies to prescription drug
companies" to rein in the rising cost of Medicare, the $600
billion healthcare program for the elderly and disabled.
Administration officials say the President was talking about
requiring pharmaceutical manufacturers to offer rebates on drugs
for 10 million people known as "dual eligibles" because they
qualify for Medicare and Medicaid, and receive drug benefits
through Medicare's Part D prescription drug program. Medicaid is
the federal and state funded healthcare program for the poor.
The nonpartisan Congressional Budget Office estimates that
requiring rebates for dual eligibles would save $137 billion in
Medicare spending. Often the oldest and sickest beneficiaries,
dual eligibles account for fewer than 20 percent of Medicare
beneficiaries, but more than 30 percent of program spending.
Damien Conover, an analyst with the Morningstar investment
research firm, said requiring Medicaid-level rebates for dual
eligibles could trim 2 percent to 7 percent from the profits of
drug manufacturers. The impact would vary depending on how much
of a company's business is in the United States and how much is
dependent on Medicare reimbursement, he said.
The U.S. pharmaceutical industry takes in about $300
billion a year in revenue.
"For most companies, it's probably a couple of percent hit
to earnings, which is something clearly negative for the
industry but manageable," said Barbara Ryan, a long-term
pharmaceutical industry analyst, who now runs her own consulting
firm. "Whether it could happen or not is another question, but
it's unequivocally going to be the hot potato that's thrown
around for the industry."
The rebate proposal, which has been circulating among
policymakers and think tanks in Washington for years, had drawn
industry ire before Obama's remarks on Tuesday.
Eli Lilly & Co Chief Executive John Lechleiter
estimated it would cost the industry $112 billion over 10 years
and reduce the number of new drugs developed.
"I think this would be disastrous for patients. It would be
disastrous for pharmaceutical research. We think it's bad policy
and we are going to fight it," he told a biotech conference in
New York on Monday.
Other major drug companies contacted by Reuters, including
Merck & Co and Pfizer Inc, declined to comment
on the potential impact.
Pharmaceutical Research and Manufacturers of America, the
industry's chief Washington trade group, warned that the
proposal could "up-end" the successful Medicare Part D program
that allows beneficiaries to purchase private drug coverage
priced through competition.
It was unclear whether the proposal would ever succeed as
legislation, given a bitterly divided Congress and predictions
by some lobbyists that Medicare would see reforms only under a
broad agreement that would require Republicans to accept higher
But analysts say the President, who this week backed away
from a separate proposal to raise Medicare's eligibility age to
67 from 65, has few alternatives for wringing fiscal savings
from the program. One option is raising costs for wealthier
Americans eligible for Medicare benefits, which he also
highlighted in his speech on Tuesday.
"Those two ideas are among the most palatable ideas for
getting savings from the Medicare program," said Drew Altman,
president and chief executive of the nonpartisan Kaiser Family
Foundation, which tracks healthcare issues.