Critics of Obama's Medicare Part D "Doughnut Hole" Closer Miss the Mark

This has been bothering me all weekend -- so I've finally sat down to write about it -- here, relatively late on Sunday night.

Usually very level-headed in its assessment of the "puts and takes" in the current health care reform efforts, The New York Times had, via the keyboard of David D. Kirkpatrick, by Saturday morning, reprinted a common (and largely-errant) talking-point criticism of the proposal to close the Medicare Part D "Coverage Gap", or Doughnut Hole, if you prefer -- suggesting that the current proposal is simply a payoff to branded pharmaceutical manufacturers. The suggestion is that the "Doughnut Hole Closer" will simply hand money to seniors, and thus discourage switching from branded prescriptions drugs, to the generally far-cheaper generic versions of the same chemical compounds. Here is the (largely-false) charge, as repeated by Kirkpatrick of The New York Times:

. . . .Some analysts contend that in other ways the drug industry deal could even encourage unnecessary spending on brand-name drugs. As part of its $80 billion, the industry would provide discounted drugs for certain Medicare patients who had previously been forced to pay for them until their bills reached a certain level. The deal will thus eliminate what had been an incentive to switch to cheaper generics. "It is market protection," one drug company lobbyist said of the deal, speaking anonymously for fear of alienating the White House.

Senate finance staff members counter that their bill encourages the use of generic drugs in other ways by waiving the first co-payment for patients who try them. . . .

Waiving the first co-payment is a small item -- true, but small. Far more important, and substantial, is the fact that the actual "Doughnut Hole Closer" will only cover only one half of the "hole" (on any given branded drug), not all of it, in the near term. It will be phased in slowly, over time -- not reaching apogee (complete closure of the hole) until 2019.

So, I can all but guarantee that seniors who otherwise fall into the "Part D hole" -- and are offered cash for only half of the perhaps $5,000 to $7,000 of out of pocket branded drug expense some 4 million of them face -- will do better to capture the nearly-complete "closing" of the same medical doughnut hole, by switching to generic versions of common medicines.

This is so, because even in the outliers -- where Medicare Part D only covers two thirds of the generics' cost -- because the generics are usually so much cheaper than the branded drugs (60 to 80 percent cheaper), these seniors will come out ahead by switching to the generics.

Consider that the generic doughnut hole is only about $1,000 to $1,500 in size, in most jurisdictions (even after application of the proposed post 2010 reform subsidies, the branded hole is still $2,500 to $3,500). So, for the near term, the President's proposal will drive a sensible economic switch to generics, as seniors of limited means seek to save between $1,000 and $3,000 in actul out of pocket payments each year, by switching to generics. Once the full closing of the hole occurs in 2019, there will thus likely be relatively few Americans of limited means left on the branded drugs, as the bulk of these will have long ago figured out this math, and had their doctors switch them to the cheaper generics.

Here endeth my sermon. Do pay attention, next time, ole' gray lady. . . .

Just to be complete -- here is the actual text of the White House proposal:

. . . .The President’s plan begins immediately to close the Medicare "donut hole" -- a current gap in its drug benefit -- by providing a 50 percent discount on brand-name prescription drugs for seniors who fall into it. In 2007, over 8 million seniors hit this coverage gap in the standard Medicare drug benefit. . . .