Negotiated Prices: More Savings for Medicare?
Study Shows Patients Could Save Money if Medicare Negotiates Prices With Drug Companies
July 26, 2005 -- How much money will the 2006 Medicare prescription drug
plan save patients? Significantly more if the plan allowed for negotiating drug
prices, say researchers.
Critics of the Medicare prescription drug plan that goes into effect in 2006
have argued that the plan could save patients even more money if Medicare
negotiated drug pricing with drug companies.
To test this theory, researchers compared savings using the current Medicare
drug discount cards with an Internet drug retailer and with Veterans Affairs
pricing. The VA system allows for negotiating drug prices and buys in bulk.
The researchers, including John Hayes, MD, are with the Denver Veterans
Affairs Medical Center. Their study appears in The Journal of the American
Crunching the Numbers
First, the doctors came up with a fictional patient -- an unmarried person
with a yearly income above 150% of the 2004 poverty level (more than $13,965)
with a prescription for a common heart drug.
This level was chosen because 2006 Medicare drug prescription coverage will
provide additional assistance to people below this level. The patient was also
not eligible for any other prescription drug coverage like Medicaid.
Then, Hayes and colleagues checked prices for the heart drug at
drugstore.com, through the VA system, and with the Medicare drug discount card.
The drug discount cards are currently in effect but will be replaced by the new
drug plan in 2006.
Brand-Name Drug Cost Savings
The imaginary patient would save about 11% annually on the heart drugs by
using the Medicare card, compared to buying the drugs at normal online retail
"However, the Denver VAMC could supply the same regimen for 60.5% less
than drugstore.com and 55.8% less than the Medicare discount plan," write
None of the brand-name medicines are on the Denver VAMC's preferred
formulary list, the doctors note. "Use of a preferred formulary model for
Medicare would likely further increase the savings," they write.
Generic Drug Cost Savings
The pattern was the same for the generic drugs. The Medicare card shaved
about 40% off the generic heart drugs' annual costs.
"However, the Denver VAMC could supply the same regimen for 77% less
than drugstore.com and 61.8% less than the Medicare discount plan," write
They suggest that negotiation would help.
"Had the Medicare Reform Act allowed direct negotiation for Medicare
patients, similar to the manner in which the Department of Veterans Affairs
negotiates in pharmacy purchasing, we estimate that a typical patient being
treated for [heart] disease could save at least 50% annually on the costs of
prescription medicines under coverage from the anticipated prescription card
plan," write Hayes and colleagues.