Study: Medicare misses drug discounts - from Suddenly Senior

Yes, this IS STRS related. Many of our retirees are on Medicare. It is shameful that the majority of legislators in the federal government haven't seen fit to take bids for Medicare Rx whereas they do allow competitive bidding for Rx used by vets. The pharmaceutical manufacturers are smiling all the way to the bank with many of our federal legislators along for the ride in their back pockets on this issue.

John, a Proud CORE member

December 22, 2005

The new Part D plans can't negotiate the kind of deals with drug companies that the program might get as a whole, according to the report.

By STEPHEN NOHLGREN, Times Staff Writer Published December 22, 2005

Medicare is losing out on deep discounts by turning its new drug benefit over to private insurance companies instead of negotiating directly with the drug industry, a study released Wednesday suggests.

The study, by Families USA, examined what the U.S. Department of Veterans Affairs pays for 20 common drugs vs. what new Medicare Part D drug plans will pay, beginning Jan. 1.

VA prices beat the private plan prices for 19 of the 20 drugs, and VA discounts were often two or three times deeper, the study says.

For example, in November the VA paid $497.16 for a year's supply of cholesterol-lowering Lipitor, compared with $717.84, the cheapest price that any private plans in the study could negotiate.

Medicare, with 43-million beneficiaries, could wield at least as much negotiating clout as the VA, which treats about 5-million vets, says the report.

"It is very likely that (Medicare) beneficiaries - and taxpayers who subsidize the Medicare drug benefit - are paying significantly more than they would" if Medicare would use its bargaining power, the study says.

The VA analogy is nothing new. Families USA - a Washington-based advocacy group - and others raised it repeatedly and unsuccessfully while opposing the Medicare Modernization Act of 2003, which created Part D and prohibited direct government negotiations.

What's new are the specific numbers, which are now available because the private plans must list their costs with Medicare. Other examples include Fosamax for osteoporosis: $493.32 versus $709.68. And Protonix for acid reflux: $253.32 versus $1,080.

The private plans, which were located in Ohio, Maryland, Delaware and the District of Columbia, beat the VA only on Nexium, also an acid reflux medicine. One plan's yearly price was $836.28, compared to the VA's $968.40.

Medicare spokesman Peter Ashkenaz called the study "a tired old ideological argument." Families USA "wants government price controls and a one-size-fits-all benefit," he said, and that wouldn't work well for Medicare.

Among other things, the VA often limits which drugs a vet can use, Ashkenaz said, whereas Medicare plans must cover at least two options for every major category of drugs. Vets must use VA pharmacies, whereas Part D plans work through most major chains.

"For example, in Georgia there are nine VA pharmacies, compared to 1,833 local pharmacies," Ashkenaz said.

He also noted a 2000 study by the Government Accounting Office that predicted that if Medicare followed the VA example and squeezed too hard on prices, the drug industry would try to recoup that loss by raising prices to private-sector groups like hospitals, employer health plans and union retirement plans.

That's what happened in the 1990s, when the federal government required the drug industry to give state Medicaid programs a minimum 15 percent discount off the average wholesale price, the GAO reported.

Having Medicare mimic the VA "would be unacceptable to beneficiaries and political suicide to any politicians," said Phil Blando of the Pharmaceutical Care Management Association, trade group for drug insurance plans.

Part D drug plans, which are designed to supplement traditional Medicare's Parts A and B, will receive about $700 a year from the government for every beneficiary who joins. They also collect premiums, deductibles and co-payments from the beneficiaries. They then negotiate discounts from manufacturers and pharmacies.

In general, the more people who join their plan, the better they can negotiate. Like other drug management plans, they create efficiencies by steering people to lower-cost generics and certain brands. But competition is stiff. Florida, for example, has 43 Part D plans, run by 19 companies.

On average, Part D drug plans have knocked 31 percent off the retail cost of drugs, the insurance plan trade group estimated Wednesday, and 45 percent for people who order three-month supplies through the mail.

Price reductions are critical for beneficiaries. Most Medicare plans have a so-called "doughnut hole," where coverage stops for a while and people pay the whole bill out of their own pocket. If the drug plan can negotiate a 30 percent discount, that savings is passed on to the consumer.

VA and Department of Defense discounts average about 60 percent off the average wholesale price, according to a Congressional Budget Office study in June.

Medicare should shoot for similar discounts, said David Lemmon of Families USA.

"People ought to ask themselves, "Why do we have a plan set up to prevent a Medicare pool with 42-million beneficiaries negotiating a cheaper price?' In the end, that's what the pharmaceutical industry opposed for so long.

"Why do we have dozens of plans and dozens of negotiating pools all over the country?"