• Take Action!



• Watchdog Blog



• Clean Up Washington



• White House for Sale



• Open Government



• Consumer and Civil Justice



• Election Reform



• Key Reports



• Congressional Voting Records



• The Archives



• Link to Us

Merrill Lynch Finds the Prescription Drug Fairness for Seniors Act Would Cut Drug Company Revenues by Only 3.3%

In a June 23, 1999 report, Merrill Lynch debunked the notion that a Medicare prescription drug benefit would seriously damage the pharmaceutical industry's profitability [A Medicare Drug Benefit: May Not Be So Bad]. Merrill Lynch's analysis concludes that the toughest proposal on the table in Washington, the Prescription Drug Fairness for Seniors Act (H.R. 664/S. 731), which provides a 40% discount on drug costs for all 39 million Medicare beneficiaries, would cut just 3.3% from total pharmaceutical industry revenues because volume increases would offset much of the lost revenue due to the lower prices. According to Merrill Lynch:

• Volume is more important than price in driving pharmaceutical company sales growth. Between 1994 and 1998, the impact of volume on sales growth outpaced price by better than a 4 to 1 ratio. [Page 4]

• Medicare beneficiaries who either lack or have inadequate drug coverage under-utilize prescription drugs because they cannot afford them. With a 40% price discount, the one-third of beneficiaries who lack any drug coverage would increase their consumption by 45%, and the two-thirds with some coverage would see a 10% increase in drug purchases. [Page 4]

• This increased utilization reduces the lost revenue that would otherwise result from a 40% price discount for Medicare beneficiaries by almost one-half. Without adjusting for volume increases, a 40% price discount for Medicare beneficiaries would reduce total pharmaceutical industry revenues by 5.9%. But after adjusting for increased utilization, the net drop in sales is just 3.3%. [Page 5]

The following table illustrates the potential impact of a 3.3% reduction in sales on the top ten drug companies [the actual impact of the Prescription Drug Fairness for Seniors Act on individual companies would vary by factors such as the percentage of total sales earned in the U.S. and the proportion of products used by Medicare beneficiaries].

Change in 1998 Sales and Profits of Top 10 Drug Companies
Under the Prescription Drug Fairness for Seniors Act (H.R. 664/ S.731)

Source: 1998 Sales and Profits from 1998 Annual Reports.

more resources

Because Public Citizen does not accept funds from corporations, professional associations or government agencies, we can remain independent and follow the truth wherever it may lead. But that means we depend on the generosity of concerned citizens like you for the resources to fight on behalf of the public interest. If you would like to help us in our fight, click here.