The report documents the interplay between a retail pharmacy’s prescription revenues, the consumer’s out-of-pocket expenses, and the net (post-rebate) drug price paid by each program. It also has a good background on how each federal payer operates.
Bottom line: While Medicaid had the biggest rebates, Medicare Part D had the lowest average prescription costs. Although the GAO doesn’t explain this discrepancy, my computations below show that Part D had higher generic dispensing rates than the other government payers. An argument for the triumph of formulary management over federal price controls?
The report’s Figure 2 highlights the main findings. Note that Gross Price represents the total per-unit payment to the pharmacy. See the original report for the figure’s footnotes.
[Click to Enlarge]
- Unsurprisingly, the GAO found that Medicaid had the lowest net drug prices, because of the program’s federally-mandated rebates. (These are the dark blue bars in the chart above.) In the Medicaid program, 62% ($2.54/$4.11) of brand-name retail prescription revenues were rebated to state Medicaid agencies. In contrast, Part D rebates averaged only 19% of brand-name prescription revenues.
- Medicare Part D had the highest brand-name pharmacy reimbursement rates, at $4.18. It also had the highest out-of-pocket share, at 17% (=$0.73/$4.18) for brand-name prescriptions and 21% (=$0.08/$0.38) for generic prescriptions. For a 30-day prescription, these amounts translated into per-prescription copayments of $21.40 (brand-name) and $2.40 (generic). For Medicaid, beneficiary share of prescription costs were nominal. For DOD, beneficiaries paid only 6% of brand-name prescriptions and 14% of generic prescriptions.
- Despite the rebate and pharmacy reimbursement results, Medicare Part D had the lowest average prescription cost ($1.23/unit). On pages 15-16, the GAO ruminates on multiple possible explanations for the results. Oddly, it omits any consideration of the generic dispensing rate (GDR).
- Using the data in Figure 2 above, I computed the following implied GDRs:
Department of Defense (DOD) = 66.6%
Medicaid = 73.3%
Medicare Part D = 77.6%
As a result of the higher GDR, the average Part D prescription was 6% cheaper than a Medicaid prescription and 24% cheaper than a DOD prescription.
- Part D plans' formularies used out-of-pocket payments to encouraged lower-tier generic drug usage.
- The GAO study was based on 2010 data, so seniors wanted to keep their total drug costs below the lower end of the donut hole.
As a result, seniors got the biggest bang for their buck by accepting generic substitution and paying attention to total costs. (Unlike today, preferred pharmacy networks were not a major feature of 2010’s Part D prescription drug plans.)
Hey, whaddaya know? People respond to incentives.
P.S. I didn’t bore you with the methodology. Enjoy the wonky details on pages 17-27. Note that the data sample included the same products—33 brand-name drugs and 45 generic drugs. Yes, I realize that utilization rates differed by payer.