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Summary of Prescription Drug Price Gouging Reports

October 23, 2000

The 13 million senior citizens and people with disabilities receiving Medicare who lack prescription drug coverage are being price gouged by drug companies. Thirteen prescription drug price surveys conducted by Public Citizen and state-based groups show seniors are on average being charged retail prices that aredouble the prices charged by prescription drug companies to their most favored customers, such as the Departments of Defense and Veteran Affairs.

These drug price surveys have found that the prices charged to Medicare beneficiaries without drug coverage are nearly double 98% more the most favored customer price. If the Medicare program were to get the same price discount that the Veterans Department receives, the price of drugs to uninsured Medicare beneficiaries could be cut nearly in half based on the state survey results. Such a price cut would make Medicare drug coverage much more affordable for taxpayers and substantially reduce any out-of-pocket costs for beneficiaries. Medicare beneficiaries constitute a far larger purchasing block than any current customer receiving most favored prices from drug companies.

The following solutions could end drug price gouging of uninsured Medicare beneficiaries:

• Congress should pass comprehensive Medicare prescription drug coverage, not support proposals that depend on insurance companies and HMOs to provide coverage.
• The Medicare program should be given the authority to negotiate substantial price reductions with the prescription drug industry, just as it negotiates reimbursement rates with hospitals, physicians, skilled nursing homes and other providers. Alternatively, the Medicare program could use the prescription drug fee schedule that the Department of Veterans Affairs and other federal agencies have negotiated with the drug industry saving nearly 50% off retail prices.
• If Congress will not give Medicare the authority to get such price cuts, it should pass the "Prescription Drug Fairness for Seniors Act" (H.R. 664/S. 731). It requires drug companies to give local pharmacies the same lowest price that they give their most favored customers, so those prices can in turn be given to Medicare beneficiaries.
• Even as Congress debates aid to Medicare beneficiaries, states should work individually or in regional alliances to enact legislation that provides comprehensive drug coverage and lowers drug prices for all uninsured and inadequately insured residents. Legislation recently approved in the State of Maine provides a useful model for achieving fair drug pricing.

Survey Methodology

The surveys follow standard methodological protocols for a cross-sectional study with descriptive and analytic components. The 10* non-generic drugs selected for the surveys were the most widely prescribed drugs for senior citizens drawn from the 1998 list of the Pennsylvania Pharmaceutical Assistance Contract for the Elderly (PACE), as determined by dollar volume of sales. PACE is the largest state pharmaceutical assistance program for older adults.

The most favored customer price is determined by the best federal price, usually the federal supply schedule price, provided by the Pharmacy Strategic Benefit Management Group of the Department of Veterans Affairs. The U.S. General Accounting Office has found that "federal supply schedule [FSS] prices present the best publicly available information of the prices that pharmaceutical makers charge their most favored customers." Under the FSS, the average savings is 42 percent. Because the most favored customer/best federal price does not include a pharmacy dispensing fee, an average $4 fee was added.

Senior volunteers surveyed the prices of the 10* most widely prescribed drugs for older adults at randomly selected pharmacies in each state. A sufficient number of retail pharmacies in each state or congressional district were selected randomly from the phone book Yellow Pages, and provided a 95% confidence interval.

*In the Massachusetts and New Jersey reports only the nine most widely prescribed drugs for older adults were surveyed.

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