Drugmakers have agreed to spend $80 billion over 10 years to help older Americans afford their prescription medicines, in a deal announced Saturday (June 20) by industry leaders and a powerful Senate panel.

The companies have pledged to cover as much as 50% of the cost of brand-name medicines for elderly and disabled Americans once they reach the gap in coverage in Medicare’s prescription drug programme, known as Part D.

Their decision was welcomed by President Barack Obama on Saturday as a “turning point in America’s journey towards health care reform” which “will be an important part of the legislation I expect to sign into law in October.” It follows intense negotiations between the Pharmaceutical Research and Manufacturers of America (PhRMA) and Democratic Senator Max Baucus, chairman of the Senate Finance Committee, one of a number of Congressional committees which are currently drafting health reform legislation. The Finance panel’s recently-published proposals – which include requiring employers to provide health insurance for their staff - caused massive concern to the business community when the Congressional Budget Office published estimates last week that they would cost at least $1.6 trillion.

And on June 18, the first reported projections of medical cost trends for 2010 from PricewaterhouseCoopers’ Health Research Institute forecast that healthcare costs for the nation’s employers will grow a further 9% next year.

Announcing the $80 billon deal, PhRMA’s chief executive Billy Tauzin and board chairman David Brennan (who is chief executive at AstraZeneca) said that while Part D has been “a tremendous success for the vast majority of seniors,” the coverage gap, also known as the “doughnut hole,” has “posed a challenge to some.”

Part D enrollees pay the first $295 of their prescription drug costs, after which Medicare picks up 75% of the bill until it reaches $2,700 in a year. Then begins the “doughnut hole,” during which time enrollees must pay all their drug costs until these reach $4,350 in a year, after which Medicare again picks up the bill, with patients contributing a small co-payment until the year ends. Around 3.4 million Americans are currently estimated to fall into the doughnut hole.

However, under the deal companies will provide a 50% discount to most beneficiaries on brand-name medicines covered by a patient’s Part D plan when purchased in the coverage gap, the PhRMA officials announced. “In addition, the entire negotiated price of the Part D covered medicine purchased in the coverage gap would count toward the beneficiary’s out-of-pocket costs, thus lowering their total out-of-pocket spending. Importantly, the proposal would not require any additional paperwork on the part of the beneficiary nor would an asset test be used for eligibility,” they added.

Industry spokesmen point out that many people stop taking their medications altogether when they arrive at the doughnut hole, and Pres Obama has described its existence as “a continuing injustice that has placed a great burden on many seniors.”

The new agreement will not affect the programmes offered to help patients afford their medications which are already operated by many individual drugmakers, including Merck & Co, which welcomed the deal.

"Our goal is to make sure that every patient who has been prescribed a Merck medicine has access to that medicine," said the company’s chief executive, Richard T Clark. "Merck has been providing free medicines to Medicare Part D beneficiaries through our Patient Assistance Programs for many years. With this new proposal we will go the extra step and offer direct savings to Medicare Part D beneficiaries in the coverage gap regardless of their income," he added.

- On May 11, six health care industry associations including PhRMA wrote to Pres Obama pledging to cut $2 trillion from the nation’s health care spending over the next 10 years, slowing growth in expenditures 1.5% a year over the period.