Medicare Bill May Pressure Drug Prices In Long Term NEW YORK -- With the Senate approving the Medicare bill Tuesday, the stocks of pharmaceutical makers are feeling pressure as investors realize that the bill - which many considered a windfall for the industry - may end up hurting drug pricing in the long term. Earlier Tuesday, Republicans scored a victory when the Senate voted 54 to 44 to approve a $395 billion drug benefit for Medicare. That follows Saturday's 220-215 vote in favor of the bill from the House of Representatives. President George W. Bush is expected to sign the bill into law within the next week or two. The parameters of the bill should really start kicking in during 2006. Democrats estimate the bill will increase pharmaceutical company revenues by $139 billion to $150 billion over the next decade - mostly from the sheer volume of new drug consumers that the bill creates. "Although measuring the commercial impact of the legislation is still highly speculative, we believe that, at least initially, the opportunity to increase unit volume and mix should more than offset pricing and formulary pressures," J.P. Morgan analyst Carl Seiden wrote in a Tuesday research note. But some people say that the bill's focus on private health plans and pharmacy benefit managers - which have the muscle to negotiate cheaper drug prices because of their size - could crimp drug prices more than the states could. "In our view, this takes away (Medicare's) price cutting scalpel, but leaves the chainsaw," Sanford Bernstein analyst Richard Bernstein said in a Monday research note. As it is now, the states which provide some drug benefits account for 16% of the retail drug purchases in the U.S., Evans wrote. He estimates that starting in 2006 the states' share of drug purchases will fall by at least half as seniors under the state run plan switch over to the federal Medicare prescription drug benefit plan. By law, the drug maker has to give the state a 15% discount on the retail price or the cheapest price in the market, whatever's less. "As a result, manufacturers rarely price below 15% to non-government accounts, since if they did, any losses they avoid by keeping that account are typically overwhelmed by the incremental discount owed the states," Evans said. The bill encourages the private sector to get involved in Medicare, so their bargaining power will increase and the share of the state's purchases will probably fall. Evans also argues that the Center for Medicare and Medicaid Services, or CMS, doesn't have the power to set individual retail drug prices, but with the bill it does get to control the minimum benefit standards and money given to private drug plans to produce those benefits. This bill also makes health care and drug purchasing much more of the federal government's business. "Although there is virtually no hint of price controls in the (bill) today, the government is becoming a meaningfully bigger buyer of drugs ," Seiden wrote. "With that clout comes risk." However, with the Medicare prescription drug benefit not slated to start until 2006, "the potential for fiscal crisis in the program which could be a precursor to price controls still seems to be at least six years or more down the road," he added. The bill also makes it easier for generic drugs to enter the market, which isn't great for big pharma - though widely expected. In an outright coup for the drug makers, though, the bill does prohibit the reimportation of drugs from Canada , unless the Bush administration would certify those shipments as safe, but it has already said it will make no such certification, The Wall Street Journal reported. While companies that specialize in drugs for chronic disorders commonly afflicting the elderly - like cholesterol and arthritis medications - are expected to see a near-term burst from the legislation, stocks of the whole group are down Tuesday. Wyeth (WYE) is the biggest loser, down 2.4%, while Johnson & Johnson (JNJ) is off 1.5%, Merck & Co. (MRK) is down 1.7%, Bristol-Myers Squibb Co. (BMY) is down 1%, Pfizer Inc. (PFE) is off 1.4%, Abbott Laboratories (ABT) is down 1.3%, and Schering-Plough Corp. (SGP) and Eli Lilly & Co. (LLY) are down 1% and 0.1%, respectively. This story originally came from Dow Jones Newswires... Return to the Media Section

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