Study Finds Major Medicare Overspending Generic Prescription Drugs

July 15, 2021 - Medicare overspent by 13.2 percent in 2017 and 20.6 percent in 2018 compared with Costco pharmacy member prices for the most commonly prescribed generic prescription drugs, according to a JAMA Network Open cross-sectional study. 

The study identified the 184 most common generic products prescribed in 2017 Medicare Part D claims and matched them to their member prices at Costco pharmacies nationwide.

Across over 1.4 billion Medicare Part D claims for the 184 products, the mean total prices were $12.02 and $24.32 for 30-day and 90-day prescription fills, respectively. Medicare overspent relative to the Costco member price on 43.2 percent of all prescription fills for these products. 

In comparison, Costco’s streamlined distribution system could have saved $2.6 billion on the drugs, with generic medications accounting for 22 percent of Part D spending. 

Researchers used Medicare claims data to calculate total spending, including beneficiary out-of-pocket payments for all 30-day and 90-day claims for these products in 2017 and 2018. 

They labeled the difference between the “counterfactual” cost of these prescriptions if purchased at the member price available and the total amount spent as “overspending” under Medicare. 

Total Medicare overspending increased from $1.7 billion in 2017 to $2.6 billion in 2018. About 88 percent of Medicare Part D prescriptions were dispensed for generic medications that year.  

For stand-alone Medicare Part D plans in 2018, median cost sharing was $1 for preferred generic medications and $6 for nonpreferred generic medications. About 30 percent of beneficiaries received low-income subsidies and paid little to no cost sharing.

Overspending was significantly lower on 30-day prescription fills (7.3 percent) than 90-day fills (29.4 percent), accounting for 69.7 percent of the total lower days supplied for the products.

Researchers explained that the member price for the products was below the patient’s out-of-pocket payment on 11 percent of prescription fills and below $20 on 82.4 percent of fills. In total, 98.8 percent of these prescription fills had a member price below $50. 

According to researchers, eliminating generic overspending could substantially reduce beneficiary premiums and federal spending.

“While Medicare coverage of generic drugs likely improves patient adherence and reduces other health care utilization, our analysis highlighted the inefficiencies that the current system introduces through its complex and opaque system of intermediaries, which Costco largely bypasses,” researchers said in the study. 

In April, a Kaiser Family Foundation analysis found that a minimal number of drugs accounted for a disproportionate share of Medicare prescription drug spending in 2019.

Researchers found that overall, Medicare Part D and Part B spending was concentrated among a relatively small share of covered drugs and those drugs generally did not have generic or biosimilar competitors. 

Specifically, 2,208 drugs with one manufacturer accounted for 13 percent of net total Part D spending in 2019, while all other covered Part D drugs accounted for 27 percent of net total spending. 

The average net cost per claim across the top 250 drugs with one manufacturer was $5,750, more than double as much as the average net cost per claim for the remaining 2,208 drugs with one manufacturer.

And the ten top-selling Part D covered drugs with no generic or biosimilar competition in 2019 accounted for 0.3 percent of all covered products, but 16 percent of net total Part D spending that year.