Drug Companies Get Donut; Seniors Get Donut Hole in Bush Medicare Plan

by James Parks, Aug 29, 2006

Last week, we described how seniors such as 86-year-old Paul Sauerland are falling into the donut hole under the Bush Medicare Part D plan. A new report clearly shows the donut hole—a gap in coverage that forces seniors to pay $3,000 out of their own pockets for drugs they need—is just another in a series of moves by President George W. Bush and his Republican cronies in Congress to ensure high profits for their corporate buddies.

In The Origins of the Doughnut Hole: Excess Profits on Prescription Drugs, economist Dean Baker, co-director of the Center for Economic Policy Research, says drug companies will make nearly $50 billion in excess profits under Part D in the first year alone, more than twice the size of the Medicare donut hole.

It didn’t have to be this way. The legislation creating the prescription drug program in 2003 guarantees drug companies these huge profits by prohibiting Medicare from buying drugs in bulk like the Veterans Affairs (VA). Baker calculates the difference between the average cost of seniors’ typical prescription medication and the cost when purchased in bulk through the VA. He found, not surprisingly, that for many of the drugs, the prices paid by Medicare insurers are more than twice as high as prices paid by the VA.

In fact, the excess profits drug companies will earn on the 20 most commonly-used drugs in the first year are mind-boggling. For example, the excess profits earned on Protonix, a heartburn medication, will reach just under $1 billion. The combined excess profits earned on the two dosages for Zocor, a cholesterol lowering drug, are more than $1.6 billion. The combined excess profits for the two dosages of Lipitor, another cholesterol lowering drug, come to $1.2 billion.

Baker says this gap was a deliberate effort by the Bush administration to save the government money by putting the financial squeeze on seniors who cannot afford it:

While the bill was intended to assist seniors with their drug expenses, Congress wanted to limit public spending on the program. The doughnut hole gap in coverage was the mechanism chosen. The excess profits of the prescription drug industry are the main factor that led to the need for the doughnut hole.

Of course, the doughnut hole was not the only way that Congress could have limited the cost of the program. Congress chose to administer the program through private insurers instead of allowing the public Medicare system to offer the drug benefit as a simple add-on. It is far more expensive to administer the program through private insurers because they incur marketing expenses. Private insurers also have highly paid top executives and must produce profits for their shareholders. According to the Congressional Budget Office, the decision to administer the plan through private insurers added almost $5 billion to the annual cost of the program.

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