-------- Original Message --------
Subject: RE: Folo question ?
Date: Mon, 21 Nov 2011 23:10:08 +0000
From: Lawson, Kenneth A
To: Gardner Selby <wgselby@statesman.com>

...Two situations might occur (both could occur together):  (1) drug manufacturers’ profits are decreased by the rebates; or (2) drug manufacturers raise prices to partially or completely cover the rebates, in which case these costs are ultimately shifted to consumers, hospitals, prescription drug plans (including taxpayers who support Medicaid), and other purchasers of medications.  So, strictly speaking, it might be inaccurate to say that “patients using Medicaid and Medicare to obtain their prescriptions aren’t paying those costs” because Medicare and perhaps Medicaid patients could be contributing towards the cost of rebates indirectly through the taxes they pay that support Medicare and Medicaid.   Of course, these rebate costs are spread across a relatively large number of people.


Thanks for asking for my input.




 630 pm, Nov. 21, 2011

The (NTU) statement seems misleading to me.  As I understand the proposal, it would impose a rebate on the pharmaceutical manufacturers (of at least 23% for brand-name medications) for medications covered under Part D for low-income beneficiaries.  For the pharmaceutical manufacturers, this rebate functions like a tax (although it is typically not referred to as a tax).  Rather than suffer decreased profits, pharmaceutical manufacturers are likely to recover part or all of the rebate costs through higher prices for their medications.  Thus, these costs (reflected in the form of higher medication prices) are likely to be shifted to ALL purchasers of these medications (through increased premiums, increased taxes to support Medicaid and Medicare, or directly by paying high prices for medications not covered under a prescription benefit plan).  However, because these costs will be spread out, I don’t think it is accurate to say that it is a tax of at least 23% on the Medicare prescription drug benefit for low-income beneficiaries.  That statement makes it sound like the 23% “tax” is focused on only those beneficiaries.


In addition, two other factors should be noted:


(1)    starting in 2011, pharmaceutical manufacturers are giving a 50% discount on brand-name prescription drugs for beneficiaries who are in the coverage gap (“donut hole”).  Presumably, manufacturers will seek to recover some or all of these costs as well.

(2)    Pharmaceutical manufacturers are already paying rebates to Part D plans (and other prescription benefit plans) for coverage of their medications on the plans’ formularies.  I do not know if these existing rebates to Part D plans would be affected if the proposed rebates are implemented.