A recent cross-sectional study compared the pricing of common generic medications paid by Medicare vs. Costco Members. The study looked at the most common 184 generic prescription medications filled at Costco Wholesale Pharmacy over a 2-year period and evaluated both 30- and 90-day supplies.
In two years, there were 1.4 billion Part D claims submitted for these products, totaling $12.5 billion in 2017 and $12.6 billion in 2018. According to the study published in JAMA Internal Medicine, the authors asserted that Medicare had overspent by $1.7 billion and $2.6 billion in 2017 and 2018 respectively. In total, it was estimated that Medicare overpaid on 43.2% of prescriptions for the most common 184 drugs as compared to Costco cash prices. Generic medications were used in 88% of the Medicare Part D prescriptions filled in 2018. However, generic coverage accounts for 22% of Medicare Part D spending.
With these pricing comparisons, there are still many issues to discuss. Comparing Costco cash pricing, which is based on cost plus a small markup, to Medicare Part D generic pricing that is part of a program that also covers brand and specialty medications, is comparing apples and oranges. A more accurate comparison would be to evaluate the Medicare Part D generic prices versus prices paid through commercial plans.
Medicare Part D requires transparent transactions between PBMs, pharmacies (including Costco), and all other intermediaries involved in the prescription adjudication transaction. This study performs a comparison between Medicare Part D spending versus a single organization’s prices, but it does not provide enough evidence to generate an actionable solution. Like all pharmacies, Costco submits their usual and customary drug price to the Medicare Part D plan for reimbursement. Furthermore, Costco may operate as a loss-leader on many generic pharmaceutical products, knowing that increased store traffic will lead to the increased sale of non-pharmaceutical products. This pricing methodology is not practical or sustainable in many retail pharmacies, specifically those that are independently owned with a high percentage of sales generated through their prescription department.
One always wonders what the political motivation for these studies could be. How did the researchers account for these Costco prices in the Medicare Part D dataset and where is the “counterfactual” inefficiency translating to overspending in the system? Is every patient expected to utilize Costco pharmacies? How would these results vary if a different pharmacy’s drug prices were analyzed? How are retrospective DIR fees accounted for in this analysis, which if not included, would have inflated the Medicare drug spending? While the study shows that savings may be available, it lacks actionable recommendations to realize those savings in Medicare Part D. Please share your thoughts with PHSL on this study.
Trish E, Gascue L, Ribero R, Van Nuys K, Joyce G. Comparison of Spending on Common Generic Drugs by Medicare vs Costco Members. JAMA Intern Med. Published online July 06, 2021. doi:10.1001/jamainternmed.2021.3366
Posted: September 2021