The Rural Patriot

July 27, 2006

Medicare Part D; The Costs, the Profits, and the Donut Hole

Filed under: Medicare D — theruralpatriot @ 8:41 am

When the new Medicare Part D perscription plan enrollment period started, there was confusion and frustration in signing up for the program. Now, the “donut hole” part of the plan is kicking in for many of the plan’s participants.

For all patients, Medicare covers 75 percent of the first $2,250 worth of drugs. But after that, coverage drops to zero — and doesn’t resume until the patient hits $5,100 in expenses. Then Medicare kicks in again, paying 95 percent of costs. But it’s this gap — of almost $3,000 — that many sick and disabled seniors call unaffordable.

Participants are still required to pay their monthly premiums when they hit this gap. Many on fixed incomes will find themselves having to make hard choices  regarding their medications.

Some will stop taking medications or reduce their dosages or cut back on food or utilities.

Some will start waiting until they are so sick they’ll end up in the emergency room — or worse.

There is a huge amount of evidence from research and clinical experience that seniors skip medicines when the price is too high,” said Dr. Joshua Sharfstein, Baltimore’s public health commissioner.

While researching this story, one common theme kept leaping out. It seems that although this plan was debated, passed, and promoted as a great benefit to our seniors, one of the truths is that this bill has been most beneficial for the pharmaceutical companies.

One of the most problematic issues with Part D, Severance said, is the fact that legislators wrote into the rules that Medicare cannot negotiate with drug companies for lower prices. “Who ever heard of such a thing?” he said, noting that rule flies in the face of how the federal government negotiates lower prescription prices for the VA.


Allowing drug companies to set their own prices comes out of the strong campaign contributions and lobbying by the pharmaceutical industry, Severance said, noting between 1999 and 2004, campaign contributions from drug companies totaled $46.9 million, according to Citizens for Responsible Government. Drugs purchased from Canada or the European Union run one-half or less of U.S.-purchased meds, he said.

When our legislators were debating the merits of this bill, they were using financial information that proved to be inaccurate and misleading.

Meanwhile, cost estimates for American taxpayers continue to rise: from $400 billion over a decade, when the Bush administration was selling the idea to Congress, to $750 billion as the true costs have become more clear. Prescription drug prices have shot up since the plan took effect, meaning the price tag will only increase more.

Families USA has completed a study titled, “And what happened to those drug prices?“. Below are the results of their report.  I would not be surprised if these trends continue.

  • From November 2005 to April 2006, virtually all Part D plans raised their prices for most of the top 20 drugs prescribed to seniors.
  • From November 2005 to April 2006, the median price increases among Part D plans for half of the top 20 drugs prescribed to seniors were at least 4 percent.
  • From November 2005 to April 2006, for 19 of the top 20 drugs prescribed to seniors, the median Part D plan price changes were virtually identical to changes in manufacturer prices as measured by Average Wholesale Price—AWP.
  • As of April 2006, there were large differences in the prices charged by Part D plans compared to the prices secured by the VA.
  • As of April 2006, the gap between the lowest and highest prices that different Part D plans charged for the same drug was sizable’

You may wonder just how beneficial this plan has been for the pharmaceutical companies.

TRENTON, N.J. (AP) — Shares of Merck & Co. and Schering-Plough Corp. jumped Monday as both reported higher sales and much-improved bottom lines compared with a year earlier, when they had hefty charges and Schering posted a loss. The New Jersey pharmaceutical companies, struggling with slumping sales and profits and other problems for a couple of years, each beat analysts’ forecasts by a whopping 8 cents per share, and Merck significantly raised its profit forecast for the year.


Merck, Schering-Plough and other drug makers all benefited in the second quarter from “tail wind” because of new prescription drug coverage for seniors under Medicare, analyst Dr. Timothy Anderson of Prudential Financial wrote in research reports.

UnitedHealth Group Inc. reported a 26 percent increase in second quarter profits, attributed to its Part D business.

The plan’s transfer of millions of elderly low-income prescription drug users from Medicaid to Medicare’s Part D will likely result in a $2 billion windfall for pharmaceutical companies this year alone.

Have you had the experience of calling any of these plans for information or clarification of their plans? If so, then you may not be surprised by the Government Accounting Office’s audit of how well these help lines – funded by our own government – answered customers’ questions about Medicare Part D.

Medicare D; Perscription Drug Plan Sponsor Call Center Responses were Prompt, but Not Consistently Accurate and Complete

Our calls to 10 of the largest PDP sponsors’ call centers show that Medicare beneficiaries face challenges in obtaining the information needed to make informed choices about the PDP that best meets their needs. Call center CSRs are expected to provide answers to drug benefit questions and comparative information about their sponsors’ PDP offerings. Yet we received accurate and complete responses to only about one-third of our calls. In addition, responses to the same question varied widely, both across and within call centers. Sponsor call centers’ poor performance on our five questions raises questions about whether the information they provide will lead beneficiaries to choose a PDP that costs them more than expected or has coverage that is different than expected. Rather than consider PDP options solely on the basis of the call centers’ information, callers may benefit from consulting other information sources available on Medicare Part D when seeking to understand and compare PDP options.

Investigators placed 900 calls to 10 of the largest companies that offer drug coverage to Medicare beneficiaries. They reached customer service representatives in 864 calls.

The plans provided accurate, complete responses to one-third of the calls, 294 of the 864. Twenty-two percent of the 864 responses were inaccurate, 29 percent were incomplete, and no answers were provided to the other questions.

Two of the 10 companies gave inaccurate or incomplete information at least 75 percent of the time, the report said. And operators at the same company sometimes gave different answers to the same question.

Medicare D is literally a huge headache for many of our seniors. They are being placed in a situation where they will have tough financial choices to make. This plan is costing the U.S. taxpayer almost double the amount of what was proposed. The pharmaceutical companies are raking in the money – they are the true beneficiaries of this plan. And according to our own government’s GAO, you can’t be sure that you are receiving accurate information when you call for help.

I know that our country is capable of doing better for our seniors and our taxpayers. I’m just waiting for that to happen, and I hope that it is fixed before I approach my “senior years”.



  1. The Democrats are trying to help reform this program and help participants who are being negatively affected by the “donut hole”.

    WASHINGTON, July 20 /U.S. Newswire/ — House Democratic Leader Nancy Pelosi and senior House Democrats sent a letter to Speaker Hastert today urging him bring legislation to the House floor next week that allows Medicare to negotiate for lower prescription drug prices, saving consumers and taxpayers billions of dollars.

    Negotiating lower prices is a good start; however, I’m still not comfortable with the “donut hole” concept. But with a lower price structure in place, seniors will not be hitting that gap quite as soon, and perhaps some won’t reach it at all.

    Comment by theruralpatriot — July 27, 2006 @ 8:57 am | Reply

  2. Great article! I wonder if there’s enough data to do a graph comparing soaring drug costs to seniors along the same timeline as drug company profits. Picture = 1000 words and all that.

    Comment by bythepeople — July 27, 2006 @ 1:21 pm | Reply

  3. Comment by Diesel — March 14, 2008 @ 8:31 pm | Reply

  4. We should stop referring to the Medicare Plan D “Coverage Gap” as the “donut hole” and call it something that all Americans can understand. It is a “balloon payment.” And if Congress is seeking to assist those with mortgage balloon payments, then why not assist those on fixed incomes who cannot afford wild fluctuations in their prescription costs and at least figure out a way to amortize the cost over a year. Then it could be more easily budgeted for and reduce the higher incidence of sickness by non-medication, or presentation to the emergency room.

    Comment by Bruce Monroe — April 10, 2008 @ 1:12 pm | Reply

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