The CBO estimates the increased discount on generics would save another $300 million, but outside experts such as Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota, predicts it'll end up being "one of those penny wise, pound foolish decisions." That's because generic drug companies, which have far smaller profit margins than the brand-name firms, warn that the increased discount would squeeze them out of the Medicaid market, leaving the brand-name manufacturerswhich can more easily absorb a rebate increaseto cash in when the federal program has to buy the higher priced drugs from them.
"This is a prescription for brand-name drug manufacturers to earn greater profits at the expense of low-income consumers," charges Democratic senator Jay Rockefeller. But aides for Senate Majority Leader Bill Frist and Finance Committee chairman Charles Grassley insist the generic drug companies are exaggerating the pain they'll feel from the expanded discount. They add that the deficit reduction bill, which the full Senate will consider this week, has other sweeteners for the generics companies.
The brand-name manufacturers argue that the generic rebate increase simply levels the playing field. But their case won't be helped by a report due to be released this week by the AARP, which finds that that prices for the generic versions of drugs most widely used by Americans 50 and older increased by just 0.9% over the past year, while the brand-name drugs prices over the same period jumped 6%or twice the rate of inflation.