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Medicare Part D Medication Prices Are Significantly Higher Than Medicaid, Veterans Health Administration and All Other Developed Countries, New Study Finds

Note: This press release was updated to correct the name of the Veterans Administration agency whose data was analyzed. It is the Veterans Health Administration.

July 23, 2015

Medicare Part D Medication Prices Are Significantly Higher Than Medicaid, Veterans Health Administration and All Other Developed Countries, New Study Finds

Seniors Ration Medications; Authors Call for Congress to Reduce Prices

WASHINGTON, D.C. – Because of congressional restrictions on the government’s ability to negotiate with the pharmaceutical industry, Medicare Part D drug prices are significantly higher than those in either Medicaid or the Veterans Health Administration (VHA) and 30 other countries, a study by Carleton University and Public Citizen finds.

In fact, 27 of the non-U.S. OECD (Organization for Economic Co-operation and Development) countries were able to purchase the medications studied from manufacturers at less than 50 percent of the purchase price in the U.S.

In a letter sent to Congress today, the authors call for a House-Senate committee to be formed to draft legislation that would lower Medicare Part D prices to those of Medicaid or the VHA. Doing so could save Medicare Part D between $15.2 billion and $16 billion a year and reduce the number of people who don’t fill their prescriptions for financial reasons.

The study, which was partially based on previously unpublished data, compared prices paid to manufacturers for a standardized group of brand-name medications in the 31 OECD countries, including the U.S. The study was conducted by Marc-Andre Gagnon, an associate professor at the School of Public Policy and Administration at Carleton University in Ottawa, and Dr. Sidney Wolfe, co-founder and senior adviser of Public Citizen’s Health Research Group.

Gagnon said he was surprised at the results. “We thought that brand-name medicines were a little bit more expensive for Part D, but we never thought that it would be twice as much as in other developed countries,” he said. “It is like pouring money down the drain.” 

Added Wolfe, “Medicare Part D was designed less as a system for social protection for the sick and more as a system of corporate welfare for brand-name pharmaceutical companies. Lower prices would alleviate the current de facto rationing that occurs because so many Medicare recipients cannot afford these inordinately high prices and suffer the health consequences of cost-related non-adherence to drugs prescribed for them. That’s just wrong.”

Medicare Part D was implemented in 2006 to improve pharmaceutical coverage for seniors 65 and older and for people with disabilities. It is the largest federal drug program, covering 39.1 million people and spending $69.3 billion on prescription medications in fiscal year 2013. Approximately 58 percent of Medicare Part D spending is paid to brand-name manufacturers.

But Medicare Part D is not allowed to “interfere with the negotiations between drug manufacturers and pharmacies and [Part D plan] sponsors,” according to the law that created it.

The study also found that:

  • Overall, U.S. costs per capita for pharmaceuticals ($1,010) are more than twice as much as the OECD average ($498) and more than three times that of New Zealand, Denmark or Israel.
  • Medicare Part D spends 198 percent, almost twice the median of the amount paid for brand-name medications in the 31 OECD countries. Medicare Part D pays on average 73 percent more than Medicaid and 80 percent more than the VHA for brand-name drugs.
  • Under current Medicare Part D pricing, non-innovative “me-too” drugs are priced as much or more than older, equally effective versions. 

According to Gagnon, this last aspect shows the severity with which Medicare Part D is flawed.

“The rationale for higher prices is supposedly to help pay research costs for innovative products,” he said. “By paying for me-too drugs at such high prices, not only do Part D beneficiaries not get value for their money, they end up providing incentives to develop me-too products to the detriment of innovative medicines for unmet needs.”

The authors recommend, among other things, that Medicare Part D reduce brand-name prices to at least the level of Medicaid or the VHA; that mandatory generic substitution for all plans under Medicare Part D be introduced; and that price reductions be used to reduce co-payments and deductibles. Patients wanting access to treatments that are more expensive than equivalent, equally safe and effective treatments covered under Medicare Part D should have the opportunity to access these treatments, but they should have to pay the price difference out of pocket.

Read the report here.