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Medicare Could Save $3.6B on Generic Drugs If Program Could Match Direct-to-Consumer Pricing

Analysis  |  By Christopher Cheney  
   June 20, 2022

Researchers have compared Medicare Part D generic drug pricing with pricing at the Mark Cuban Cost Plus Drug Company.

The Medicare program could realize significant generic prescription drug cost savings if it could match the prices of the Mark Cuban Cost Plus Drug Company (MCCPDC) direct-to-consumer model, a new research article shows.

Nationwide spending on prescription drugs has increased sharply in recent decades, increasing from $30 billion in 1980 to $335 billion in 2018. In 2019, the United States spent more than $1,000 per capita on prescription drugs, a spending level higher than other high-income countries.

The new research article, which was published today by Annals of Internal Medicine, is based on an analysis of 109 generic drugs sold by MCCPDC in February 2022. The researchers found comparable Medicare Part D plan pricing for 89 of the generic drugs, and they calculated pricing differences for the maximum (90 count) and minimum (30 count) quantities available.

The research article features several key data points.

  • The estimated annual Medicare spending on the 89 targeted generic drugs was $9.6 billion.
     
  • If Medicare purchased generic drugs at the maximum quantities available from MCCPDC, the program could have saved $3.6 billion on 77 of the 89 generic drugs. This represented a 37% cost savings.
     
  • If Medicare purchased generic drugs at the minimum quantities available from MCCPDC, the program could have saved $1.7 billion on 42 of the 89 generic drugs. This represented an 18% cost savings.
     
  • The drug with the highest cost savings was esomeprazole at $293 million in savings.

"Our findings suggest that Medicare is overpaying for many generic drugs, which is consistent with findings that Medicare overspent on 43% of generic prescriptions in 2018 relative to Costco member prices," the research article's co-authors wrote.

In the United States, the system used to purchase generic drugs is not cost-effective, the research article's co-authors wrote. "Generic drug competition is a major source of prescription drug savings in the United States, but the lower prices from a direct-to-consumer model highlight inefficiencies in the existing generic pharmaceutical distribution and reimbursement system, which includes wholesalers, pharmacy benefit managers, pharmacies, and insurers. By one estimate, this supply chain retains 64% of every dollar spent on generic drugs."

The research article's co-authors offer a prescription for improving the cost-effectiveness of U.S. generic drug spending. "Although direct-to-consumer private companies like MCCPDC may offer savings for some patients on select drugs, policy reforms that improve price transparency, increase competition for high-cost generic drugs, prevent annual price increases, and limit pharmacy and distribution costs could increase affordability of essential generic medicines for all Americans."

Christopher Cheney is the senior clinical care​ editor at HealthLeaders.


KEY TAKEAWAYS

If Medicare purchased generic drugs at the maximum quantities available from Mark Cuban Cost Plus Drug Company, the program could have saved $3.6 billion on 77 generic drugs.

The U.S. generic drug supply chain, which includes wholesalers, pharmacy benefit managers, pharmacies, and insurers, exerts upward pressure on generic drug pricing.

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