Generic medications are supposed to save money. And drug plans offered to Medicare patients are also supposed to help seniors afford their medications. But the secret that the insurance industry doesn’t want seniors to know is that Medicare patients and taxpayers are leaving $19 billion dollars, or more, on the table by trusting insurance and government middlemen to get them the best price for some of the most common generic prescriptions.
An analysis of estimated costs for 40 of the top generic drugs in Medicare Part D, during the first three months of 2019, reveals charges 2.5 times the average prices that pharmacies pay to acquire the drugs.
You read that right. For the top 40 generic drugs, Medicare plans will charge patients and the government approximately $10 billion for drugs that only cost about $4 billion. Extrapolating this analysis to the total yearly spending for generics in Part D of about $34 Billion, means potentially $20 Billion in spending per year over what is truly needed to cover the costs of the drugs.
The good news is that patients are not necessarily stuck taking this bad deal. Online resources like GoodRx.com often provide coupons that lower generic drug prices to levels near wholesale prices. Another increasingly popular option for patients looking to pocket savings on prescriptions is bypassing the middlemen’s markup by purchasing directly at the point of care, from their trusted physician. Physicians who dispense generic drugs directly to patients, in the 45 states that allow it, offer prices comparable to the wholesale prices pharmacies are paying to obtain the drugs. This means an estimated average of nearly 60% savings off of the prices in Part D, translating into $5 billion back in the pockets of seniors, plus $15 billion in taxpayer funds saved.
For some drugs seniors could save even more. For instance, the charges for Amlodipine are 6 times as much through the average Part D plan, than the cost at the typical Direct Primary Care practice.
And the estimated $20 billion in total savings doesn’t even account for brand name drugs that were filled when a lower cost generic is available. HHS estimated that in 2016, about $3 billion would have been saved (not accounting for manufacturer rebates common on brand name medications) if Medicare patients had been given the generic instead of the branded drug. But the savings could have been even higher if the generics had been sold at the acquisition cost instead of the price determined by the plan. Reasons patients are given a brand instead of the generic often have nothing to do with quality but are a result of flawed Medicare policies and rebates for branded drugs that benefit the middlemen instead of patients.
While generics prices as a whole have been dropping patients in Part D may not be seeing any of the savings, since, as Pharmacy-analysts at 46Brooklyn put it, “plans are setting wildly inflated generic cost in comparison to true market-based cost.” Despite dropping wholesale prices, the difference between the price and what Part D plans are charging appears to have increased about 9% between 2017 and 2019, based on extrapolations from 46Brooklyn analysis.
State Medicaid programs are also overpaying about 1.6 times more than pharmacy acquisition costs for generics. An analysis built using data from the 46Brooklyn Medicaid Rx Pricing Heat Map estimates that perhaps $2.5 billion per year could be saved through physician-dispensing.
The bottom line is knowledge is power. Taxpayers and policymakers who understand this scheme can demand reforms, like efforts underway in Texas, that re-empower individuals and lower costs. Patients knowing about better options, like obtaining low cost, high-quality drugs directly from their physicians, transfers power away from the middlemen who are actually increasing costs while claiming to lower them.
For more background and methodology on this article see:
