Obama Announces $80 Billion Agreement With Drug Companies

WASHINGTON -- President Obama announced Monday that drug companies have agreed to close the "donut hole" in Medicare coverage by providing $80 billion in cheaper drugs over the next decade. 

Obama said closing the gap in Medicare drug coverage will help make health reform more possible. 

The "donut hole" refers to the gap in prescription drug coverage after the first $2,700 in yearly prescription costs is covered by Medicare. Then patients have to pay their own costs for drugs until costs exceed $6,100. 

"This gap in coverage has been placing a crushing burden on many older Americans who live on fixed incomes and can't afford thousands of dollars in out-of-pocket expenses," Obama said. 

"I'm pleased to report that over the weekend we reached an understanding that will help close the notorious donut hole in Medicare Part D. This is a significant breakthrough on the road to health care reform, one that will make the difference in the lives of many older Americans," he said. 

The president invited Barry Rand, head of the senior citizens' advocacy group AARP, to appear with him. The deal was struck with Democratic Sen. Max Baucus, the chairman of the Senate Finance Committee, as well as the White House

AARP spokesman Ken Johnson said there are other parts to the agreement that have still not been completed, but he declined to provide details. 

The president used the opportunity to make his sternest call yet for action, saying the drug agreement is one piece of "health care reform I expect Congress to enact this year." 

Obama said the move on Medicare will help correct an anomaly in the program that provides a prescription drug benefit through the government health care program for the elderly and disabled. Under the deal, drug companies will pay part of the cost of brand name drugs for lower and middle-income older people in the so-called "doughnut hole." 

The drug companies' investment would reduce the cost of drugs for seniors and pay for a portion of Obama's proposed revamping of health care. 

Under the agreement, part of the $80 billion would be used to halve the cost of brand name drugs for Medicare recipients when they are in a coverage gap of the program. AARP, which represents 40 million older Americans, has long lobbied to eliminate that coverage gap completely. 

The deal would affect about 26 million low- and middle-income recipients of the program's enrollees, AARP said. It would apply to brand name and biologic drugs, but not generics, the group said, and likely take effect in July 2010, assuming drug overhaul legislation becomes law. 

The Associated Press contributed to this report.