Under the deal, brokered by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, drug companies agreed to pay half the cost of prescription drugs that fall under the "doughnut hole" in the Medicare Part D prescription drug benefit. Now, Medicare beneficiaries are responsible for paying the full cost of their prescription drugs once they exceed $2,700 per year, up to $6,154 per year.
President Obama welcomed the agreement in a statement Monday.
"This is a significant breakthrough on the road to health care reform, one that will make a difference in the lives of many older Americans," he said.
Listen to the full statement here:
Analysts say that the drug companies' decision was strategic -- they accepted the payment cuts now in order to gain a seat at the bargaining table and stave off potentially more drastic cuts later.
"We recognize that there has to be a shared sacrifice if we're going to extend high-quality, affordable health-care coverage to everyone in America," said Ken Johnson, senior vice president for the Pharmaceutical Research and Manufacturers of America trade group, according to the Wall Street Journal.
The agreement, which will take effect only if Congress passes health-care reform legislation, is one of a series of cost-cutting measures the government is aiming to implement in order to pay for the reform.
President Obama has said he is aiming to sign a health care reform bill into law by October, but efforts hit a series of stumbling blocks in Congress last week, as the Congressional Budget Office estimated the cost of one version of a bill in the Senate at about $1.6 trillion over 10 years.