Medicare Benefit Prompts Increased Drug Sales
The Medicare prescription drug benefit "appears to be fueling the solid quarterly earnings reports from drug companies," the Wall Street Journal reports. The Medicare prescription drug benefit has prompted increased use of medications -- total U.S. prescription volume in the month that ended July 14 increased by 4.9% from a year earlier -- and has led to increased sales for large pharmaceutical companies.
In part because of the Medicare prescription drug benefit, Pfizer last month reported that second-quarter sales of the anticholesterol medication Lipitor increased by 9% from a year earlier, and Eli Lilly reported higher-than-expected sales of the antipsychotic Zyprexa. In addition, Novartis last month reported that second-quarter U.S. sales increased by 20%, with sales of the hypertension medication Diovan helped by the Medicare prescription drug benefit.
Adam Fein, president of Pembroke Consulting, said that the Medicare prescription drug benefit is "boosting utilization of pharmaceuticals by providing outpatient drug coverage for many previously uninsured or uninsured" beneficiaries and has allowed beneficiaries to afford to take their medications as prescribed. According to the Journal, some of the benefits for pharmaceutical companies also are "coming from a shift in government sources of reimbursement," such as the transfer of prescription drug coverage for dual eligibles from Medicaid to Medicare.
Tim Anderson, an analyst with Prudential, said, "The tailwind is likely to last through the end of 2006, and, if investors are lucky, it will extend past 2006."
However, many pharmaceutical companies predict that the benefits will not continue in the long term because "the managed care companies that administer the Medicare drug benefit might get tougher in trying to negotiate price discounts with the drug makers next year," the Journal reports.
Congress also might pass legislation that would allow Medicare to negotiate directly with pharmaceutical companies for discounts on prescription drugs, a move that "could cause price cuts and hurt drug makers' sales," according to the Journal (Loftus, Wall Street Journal, 8/2).