Drug Companies Agree to Reduce Prescription Drug Costs by $80 Billion in 10 Years

In an ongoing effort to reduce healthcare costs, President Obama announced an agreement with pharmaceutical companies that will reduce prescription drug costs by $80 billion (included in an overall cost savings of $2 trillion) over the next 10 years. The agreement, which was reached between Sen. Max Baucus of Montana, Obama administration officials, and U.S. drug companies, and announced on June 22, 2009, is expected to ultimately reduce the price of prescription drugs by half for millions of America’s seniors.

As part of the agreement, drug manufacturers that participate in Medicare Part D (also called the Medicare Prescription Drug Plan) will either pay a rebate to Medicare or offer a substantial discount of at least 50 percent on prescription drugs to seniors who fall within the "doughnut hole"— payments between $2700 and $6153.75 that are not covered by Medicare.

The White House says this agreement “will help close this unfair gap in coverage, providing relief for millions of seniors who have been burdened by these out-of-pocket expenses, making it easier for them to get the prescriptions that they need.”

Announcing the agreement, President Obama confirmed his determination to reduce healthcare costs. “Our goal -- our imperative -- is to reduce the punishing inflation in health care costs while improving patient care. And to do that we're going to have to work together to root out waste and inefficiencies that may pad the bottom line of the insurance industry, but add nothing to the health of our nation.”

At this time, no information has been provided about changes to Medicare or how cost reductions will be handled on an individual basis. I imagine it will take awhile to put the agreement in place, and the agreement stipulates that this will happen within 10 years so I wouldn't expect major changes right away.

If you have questions about how this will affect you, I encourage you to contact Medicare at 1-800-MEDICARE (1-800-633-4227). The phone lines are staffed 24 hours a day, 7 days a week.

To learn more about the Medicare prescription drug "doughnut hole," how the Medicare Prescription Drug Plan (Medicare Part D) works and how to enroll in the program, see Medicare Prescription Drug Plan: How to Understand It and Enroll.