Medicare is paying billions more for prescription drugs than it would if it paid Costco prices.
If Medicare Part D had paid prices for generics similar to what patients pay at Costco pharmacies, it would have spent $1.7 billion less in 2017 and $2.6 billion less in 2018, according to a new study in JAMA Internal Medicine. The paper’s authors arrived at the result by examining what Medicare Part D paid for the 184 most common generic drugs in 2017 and 2018 and then compared it to what those drugs cost at the big-box retailer Costco.
Generic drugs account for almost 9 in 10 prescriptions under Part D and about 22% of total spending.
“Our analysis shows that in systems like Costco’s, where incentives are set up to deliver value directly to the consumer at the pharmacy counter, that’s what happens,” Erin Trish, associate director of the University of Southern California Schaeffer Center for Health Policy and Economics and lead author of the study, said in a press release. “It’s time to fix those incentives in the Medicare Part D system to put the patient first.”
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Trish also told Forbes that while insurers who participate in Part D do negotiate lower drug prices, they don’t “pass those savings on to the consumer.” Rather, they use the savings to boost their bottom lines, as opposed to Costco, which passes the savings on to customers.
But Chris Pope, a senior fellow with the conservative Manhattan Institute, suggested the study actually showed that patients feel little need to compare the prices of generic drugs among pharmacies because insurers do a good enough job keeping prices low.
“This suggests that cost-sharing for generic drugs under Medicare Part D is so low that patients tend not to shop around for them,” Pope said.
The study also stated that “eliminating generic overspending could significantly reduce beneficiary premiums and federal spending.”
Overspending on generics amounts to 1.7% of the over $100 billion Part D spent in 2017 and 2.6% of the $95 billion it spent in 2018.
Drug spending has gotten the attention of politicians in recent years, especially Democrats in Congress.
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Earlier this year, House Democrats proposed H.R. 3, a bill that would require the federal government to negotiate prices with drug manufacturers for up to 125 drugs that account for the largest portion of Medicare spending. The negotiated price of a drug could not exceed 120% of the average price of that drug in countries where costs are lower, including Australia, Canada, France, Germany, Japan, and the United Kingdom.
