Donut Hole Discount Program Begins Jan. 1—Or Does It?

There’s a bit of buzz in Washington, DC about a “loophole” in the brand name pharmaceutical industry’s 50% discount for Medicare beneficiaries in the coverage gap (better known as the “donut hole”).

The discount is supposed to begin Jan. 1, offering some more-or-less immediate relief for the elderly and disabled Medicare beneficiaries who run up high prescription drug costs—a fact highlighted by the White House at every opportunity in selling the reform law.

Except that—um—it might not.

As we point out in “The Pink Sheet,” the Centers for Medicare & Medicaid Services issued a proposal for implementing the discount program last week, and the agency’s initial position is that there is no practical way to punish companies who fail to offer the discount next year. The bottom line, CMS says, is that Part D formularies are already submitted, while the 50% discount agreements won’t be done before this summer at the earliest. So it isn’t possible to exclude products that aren’t covered by the rebate from the program in 2011.

As CMS puts it: "This could mean that some of the brand-name drugs on plan formularies will not be discounted in the coverage gap unless all manufacturers of Part D drugs enter into agreements for 2011 by our deadline in 2010. If this situation occurs, CMS will provide clear public guidance on why discounts are not available for some formulary brand name drugs. Only applicable drugs with labeler codes identified by CMS as having manufacturer discount agreements in place for 2011 shall be discounted in 2011."

In other words, the “mandatory” discount is basically optional.

Okay, this has all the makings of a tempest in a teapot. After all, the 50% donut hole discount was the pharmaceutical industry’s idea, the centerpiece of the “deal” struck by the Pharmaceutical Research & Manufacturers of America on health reform last year.

Surely no company would decline to offer the discount—and risk the wrath of Congress and the White House that would ensue?

On the other hand, not every pharma company is a member of PhRMA. In fact, most are not. And wouldn’t a CEO that really believes the discount will adversely affect his company’s business have an obligation to refuse to sign an agreement?

Maybe. But now that the buzz has begun, we expect this matter to be resolved. One way or another, we expect CMS will find a way to make sure that every pharmaceutical company sees the discount as mandatory after all. It is just a draft policy, after all.

So we expect this “loophole” to be closed and quick. In our next post, though, we point out a different “loophole” that CMS anticipated and cut off before it began: “authorized” generics will be subject to the 50% discount.