Medicare Bill "Windfall" For Drug Firms, Researcher Says

November 1, 2003
The $400 billion Medicare prescription drug bill could mean big profits for the drug companies, according to a study by a Boston University researcher. Bush administration officials took sharp exception to the findings.

Drug companies could enjoy "windfall profits" of at least $139 billion over eight years, said Alan Sager, director of BU's Health Reform Program and a co-author of the study.

Since Congress is not instituting a mechanism to negotiate for price discounts as the Department of Veterans Affairs and other agencies now do, drug companies will be "unrestrained" in pricing the drugs they provide to elderly Americans, he said.

Sager said his group decided to study where the $400 billion would be spent. After deducting 5 percent ofr administrative costs, the researchers found that about half the money would be used to buy drugs that patients currently need but do not get because they can't afford them. The other half would cover drug purchases already being made by seniors.

The Bush administration disputed the study's conclusions, saying the researchers failed to take into account that pending legislation provides that pharmacy benefit managers will negotiate on behalf of seniors, similar to the way such firms now negotiate on behalf of large corporations and insurers.

Thomas Scully, director of the Centers for Medicare & Medicaid Services, said the drug benefit would produce higher volume for the drug industry but lower margins.

Sager's group "should be ashamed of themselves," Scully told The New York Times.