U of M study blasts disparity in Medicare Rx prices

Study Finds "Tremendous" Disparity In Medicare Prescription Drug Prices
People in Poorest States Often Pay the Most

Consumeraffairs.com

January 11, 2007

The Medicare prescription drug benefit, introduced last year, is designed to reduce drug costs for seniors. But a new study suggests the plan reduces costs for some seniors a lot more than others, depending on where they live.

Researchers at the University of Michigan conclude that if Congress were to negotiate lower drug prices for the Medicare Part D Prescription Drug Program, it would make the system fairer and save seniors even more money.

Their study finds tremendous variation in what Medicare enrollees in different states pay for the same medications, even with the lowest-cost Part D plans.

In fact, two people taking the same drugs but living in different states could face costs that differed by thousands of dollars -- even if each had chosen the lowest-cost plan available to them. And within a state, the difference in a person's costs for the same drugs could top $10,000 a year or more, depending on which plan he or she chose.

Such wide variation in prices means that Medicare prescription drug plans are substantially more affordable in some states than in others, the authors conclude.

In all, depending on which medicines they're taking and which plan they're in, people in one state might spend 10 percent of their annual income to pay for prescription drug coverage premiums and co-pays, while someone taking the same medicines in another state would spend 20 percent of their income, the study finds.

The difference in plan costs appears to have little to do with the cost of living in different states, the researchers found. In fact, some of the states with the lowest cost-of-living-adjusted average incomes had some of the highest drug plan costs.

The researchers, led by U-M physician and health care policy researcher Matthew Davis, M.D., made the findings using Medicare's own Web-based calculator for prescription drug plan costs. They analyzed every plan in every state for four real patients who had typical ailments and medication regimens, and looked at what the plans would cost, considering plan premiums, coinsurance, and copays each time a prescription was filled.

The results, published in the January Journal of General Internal Medicine, may help inform the Congressional effort to reform the Medicare drug benefit, including bulk purchasing.

Currently, individual Part D plans offered by commercial insurers acquire their own drug supplies at the prices they are able to negotiate with pharmaceutical manufacturers and distributors, and set their own drug lists, premiums and co-pays.

"The expected costs of even the least-expensive plans in each state varied by hundreds and sometimes thousands of dollars," says Davis, an associate professor of general internal medicine and pediatrics at the U-M Medical School, and associate professor of public policy at the Gerald R. Ford School of Public Policy.

"This has implications for individuals' ability to afford and keep taking their medicines, and for policy as the prescription drug benefit is evaluated and changes are considered."

Davis, who is also a senior health researcher at the Center for Studying Health System Change in Washington, DC, adds, "No one doubts that the Part D benefit has helped many seniors by giving drug coverage to those who previously had none, but the level of variation among the lowest-cost plans is far greater than many seniors and policymakers probably anticipated."

Davis and his co-authors funded the study themselves, and have no financial interest in it or its outcomes. It's the first study to look at variation in Part D costs across all 50 states and the District of Columbia, and is the first to use actual patient scenarios to examine prices across states for the same drugs.

The patients whose potential drug costs were analyzed were:

• a 66-year-old man with high blood pressure, high cholesterol, depression, and diabetes, both with and without insulin;

• a 72-year-old woman heart attack survivor taking medications for heart failure and to prevent another heart attack; and

• a 78-year-old woman needing drugs for osteoporosis, high blood pressure and chronic pain from arthritis and a spine fracture caused by her osteoporosis.

Their drug costs were calculated based on the least expensive combination of generic and brand-name medications.

For example, the 78-year-old woman might pay $4,113 out of her own pocket each year for her four medicines if she chose the lowest-cost plan available in Michigan, while the same drugs would cost her $16,856 if she lived just over the border in Ohio and had chosen the lowest-cost plan there. On average across the United States, her plan costs would be $8,146.

The same patient would also pay a lot more out of her pocket depending on which plan she chose within Michigan or Ohio, or any other state, Davis notes. In Michigan, the highest-cost plan would cost her $13,806 more per year than the least expensive plan, while in Ohio the difference between lowest-cost and highest-cost plans would only be $1,079. The average difference between highest- and lowest-cost plans within one state for this patient was $10,382.

The variations in costs were smaller for the other three patients analyzed, but still sizable, with a $1,500 average in-state difference between highest- and lowest-cost plans for the non-insulin dependent diabetes patient (which went up to $1,700 average difference for an insulin-dependent patient), and a $1,900 average in-state difference for the heart-attack survivor.

"This shows just how high the stakes can be when a senior is deciding which plan to choose, or deciding whether or not to switch plans," as many seniors did before Dec. 31, 2006, Davis said. "It is extremely important that Medicare beneficiaries use the online cost calculator or get other assistance as they choose their plans," he adds, "because choosing a plan based on a familiar name may not lead to the lowest costs for a person's medicines."

The researchers also assessed affordability of the lowest-cost Part D plans for the four patients if they lived in each of the 50 states and the District of Columbia, based on average income for households with no wage earners (such as retirees) adjusted for the cost of living in each state.

In two of the four cases, they found that the expected costs of prescription drugs were comparatively higher in the states with comparatively lower average incomes.

For example, the heart attack survivor would on average pay 8 percent of her cost-of-living-adjusted median income for her prescription drugs across the country. In Florida, where the adjusted median income is higher than the national average, this Medicare patient would pay $2,348 (about 7 percent of annual income) for the lowest-cost plan. Across the border in Georgia, where the adjusted median income is lower than the national average, the lowest-cost plan for the same medicines would cost about $140 more per year ? meaning that the patient would end up paying about 12 percent of annual income for those medicines.

"The people who can least afford to pay higher prices were the ones facing those higher prices," Davis comments.