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Comparative Drug Prices

By July 24, 2014Commentary

We all know that pricing for prescription drugs can be all over the map.  Regulators have tried a number of mechanisms to ensure that publicly-funded health programs don’t pay more than they have to.  The Government Accounting Office looked at prices paid by three large government programs–Medicare, Medicaid and the Department of Defense health benefits plan.  These plans cover over 114 million beneficiaries at a cost of about $71.2 billion in drug spending.   (GAO Report)  Using data from 2010 for drugs dispensed by retail pharmacies, which includes mail dispensing, the Agency selected 50 high price drugs and the 50 highest utilized medications, which after overlap, left 78 drugs, 33 of which were brands and 45 generics.  The researchers ascertained both gross unit prices–the amount paid by the programs and the beneficiaries, and net unit prices–only what the programs paid.   As might be expected, Medicaid paid the lowest net price per unit, at 62 cents across all the studied drugs, while Medicare Part D paid 82 cents a unit (32% higher) and the DOD paid 99 cents (60% more).  And note that for Medicaid, GAO only used mandatory federal rebates and did not include any supplemental state refunds, which would have made the net Medicaid unit prices even lower.  Gross prices were more dispersed across the programs, with Medicare having the lowest gross unit prices, while Medicaid was next and DOD quite a bit higher.  But DOD had the lowest unit gross prices for brands, while Medicaid did for generics.  Medicaid had the lowest net prices for brand drugs and generic drugs, while DOD paid 34% more for brands and 50% more for generics and the Part D plans paid 69% more for brands but only 4% more for generics.  On an individual drug basis, however, some interesting differences are revealed.  Medicaid paid the lowest net price for 25 brands and 3 generics, DOD paid the lowest for 5 brands and 22 generics and the Part D plans for 3 brands and 20 generics.   Medicaid gets far higher rebates or post-purchase adjustments than did the other programs, which accounts for most of the difference in net unit prices.   Medicaid’s rebates are generally statutory, which raises the question of why they haven’t been extended at least to the DOD program, and potentially made available to the Medicare Part D plans.  The drug companies make money even on Medicaid prescriptions, so it is not clear what the rationale is for letting taxpayers pay more for DOD and Medicare drugs than they do for Medicaid ones.  The data also demonstrate the power of a competitive market, with the Part D plans able to obtain good prices on generics but limited rebates on brand names, in part because Congress and CMS insist that they must have multiple drugs in all therapeutic categories and all drugs in a few.  Removing that restriction would increase the negotiating leverage of the Part D plans.

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