Medicare, part D

Is it working?

For big drug companies, the new Medicare prescription benefit is proving to be a financial windfall larger than even the most optimistic Wall Street analysts had predicted.But those gains may come back to haunt drug makers if Democrats take control of Congress this week. Democrats, who have long charged that the drug industry is profiteering at taxpayers’ expense, say they want to introduce legislation to revoke the law that bars Medicare from negotiating prices directly with drug makers like Pfizer for the medicines it buys. Medicare now pays for drugs indirectly, through the private insurers that administer the prescription program — and those insurers typically pay higher prices than government agencies, like the Veterans Administration, that buy medicines directly from drug makers. (NY Times)

I guess the question more to the point is this one: who benefits?

Part D has raised profits for drug makers both by increasing the prices they receive and by encouraging beneficiaries to fill prescriptions they might otherwise have been unable to afford, analysts say. The biggest gains have gone to companies that make drugs widely used by the Medicaid program, which covers the indigent. Poor people over 65, known as “dual eligibles,” previously received drugs through Medicaid.

Drug makers were legally required to give Medicaid a discount of at least 15 percent, and sometimes significantly more, from their list prices. Now Medicaid recipients over 65 are covered through the Part D program, which does not require the same discounts. As a result, drug makers are being paid as much as 20 percent more for the same drugs that they had already been providing to recipients under the Medicaid program.

The biggest gainer, analysts say, is Eli Lilly, which makes Zyprexa. Zyprexa, used to treat schizophrenia and other severe mental illnesses, is widely prescribed to Medicaid patients. Lilly, the sixth-largest American drug maker, reported two weeks ago that its third-quarter sales had risen 7 percent, to $3.9 billion, and its profits were up 10 percent, to $874 million, compared with 2005. According to Lilly’s published review of the quarter, the sales gains resulted almost entirely from Lilly’s prices rising 11 percent in the United States, while actually falling in Europe and Japan.

“We are experiencing a one-time sales benefit resulting from a shift of certain low-income patients from Medicaid to Medicare,” a company spokeswoman, Terra Fox, wrote in an e-mail response to questions about Part D. Ms. Fox declined to quantify how much Lilly had gained from the shift.

But Lilly is hardly alone in benefiting. Pfizer, the world’s largest drug maker, said its sales soared 14 percent in the United States in the third quarter, while rising only 3 percent internationally. Over all, Pfizer said its profits more than doubled, to $3.4 billion from $1.6 billion, though part of the difference came from high one-time charges last year.

Barbara Dreyfuss argues, not unconvincingly, that Medicare part D was rigged from the start by insurance companies.