Comparison of Drug Regimen Costs Between the Medicare Prescription Discount Program and Other Purchasing Systems

To the Editor: Commentators have suggested that the new Medicare Prescription Drug Improvement and Modernization Act would cost substantially less if the federal government were allowed to directly negotiate drug prices for patients insured under Medicare.¹ In contrast, the Congressional Budget Office has concluded that this effect would be negligible and has emphasized substantial savings available through the Medicare associated private plans.² The Department of Veterans Affairs directly negotiates with pharmaceutical companies for the prices of dispensed prescriptions. We estimated the savings for a hypothetical patient if the Medicare benefit utilized direct negotiation with pharmaceutical companies similar to the approach used by the Department of Veterans Affairs.

We examined the costs of 2 equipotent evidence-based regimens, one brand-name and one generic, commonly prescribed for patients with cardiovascular disease³ (Table). First, we found the prices for our selected regimens at the Web site drugstore.com.⁴ This was chosen as a typical discounted retail price because this company serves each of the 50 states and is the leading Internet traffic site for US licensed pharmacies (personal communication, Graham Mudd, senior analyst, comScore Networks Inc). We then accessed the Medicare Web site that allows patients to view their potential prescription costs under the discount card plans.⁵ The least expensive Medicare card plan in the specific zone within ZIP code 80220 denoted on the Medicare Web site was chosen for both regimens to evaluate total annual costs for a non-dual–eligible, unmarried person at or above 150% of the poverty level income threshold for 2004 (annual income >$13 965).⁶ This level was chosen because, while the current prescription drug discount card provides prescription assistance only to individuals below 135% of the poverty level, the drug plan beginning in 2006 will provide some assistance to most people under 150% of the poverty level. Finally, we obtained the Denver Veterans Affairs Medical Center (VAMC) acquisition and dispensing costs for the same regimens from the medical center’s chief of pharmacy.

Comparison of the total annual costs for the 2 regimens is shown in the Table. For the brand-name regimen, the Medicare prescription discount card program offered a 10.6% annual savings compared with drugstore.com. However, the Denver VAMC could supply the same regimen for 60.5% less than drugstore.com and 55.8% less than the Medicare discount card plan.

For the generic regimen, the Medicare prescription discount card program offered a 39.9% annual savings compared with drugstore.com. However, the Denver VAMC could supply the same regimen for 77.0% less than drugstore.com and 61.8% less than the Medicare discount card plan.

In our sample regimens, the new Medicare prescription discount cards offered a modest savings when compared with the Internet mail order pharmacy site. Alternatively, the Denver VAMC could purchase and fill both regimens at a substantially decreased cost. This suggests that adopting a strategy of negotiating drug prices could significantly lower costs in the future Medicare prescription plan.

There are limitations to this analysis. There is potential Medicare plan variation in pricing based on the location of a given patient and number of available plans. We specifically did not address the issue of a patient at or below 135% of the poverty level, because these patients normally will qualify for a special credit and price discount. The 2006 Medicare plan is not based on discount cards and may have greater savings compared with the current program. In order to expose the many trainees in the VA health system to their products, pharmaceutical companies may allow lower negotiated prices, and might not be willing to negotiate such discounts for the Medicare system. Conversely, none of the brand-name medicines are considered preferred formulary choices for the Denver VAMC, and use of a preferred formulary model for Medicare would likely further increase the savings.

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 cardiovascular disease could save at least 50% annually on the costs of prescription medicines under coverage from the anticipated prescription card plan. As an additional factor, the 2006 Medicare plan includes no coverage for annual prescription costs between $2250 and $5100; lowered prices through government negotiation would decrease the chances of a patient falling into this future coverage gap.

Such savings, when multiplied across the millions of patients under Medicare, could have a significant impact on the overall cost of the Medicare prescription drug benefit.