Report: New Medicare Drug Plans Fail to Provide Meaningful Drug Discounts

Drug prices offered by ten leading Medicare drug plans are over 80% higher than federally negotiated prices and over 60% higher than Canadian prices.

Republican leaders and Bush Administration officials have repeatedly promised that the new prescription drug benefit being offered through Medicare Part D would benefit seniors and protect federal taxpayers by keeping drug costs down. According to former Health and Human Services Secretary Tommy Thompson, the health insurance companies sponsoring the Medicare drug plans "are going to be able to purchase in bulk with the pharmaceutical companies and hold down prices." When Democrats argued that Medicare should be authorized to negotiate directly with drug companies for low prices, Senate Majority Leader Bill Frist rejected the proposal, claiming that "competition through the private sector, through bulk purchasing and negotiation, is a more effective means to hold down prices."

At the request of Rep. Henry A. Waxman, this report examines whether the Republican promises of low drug prices have been achieved. The analysis in the report is based on a comparison of the drug prices offered by ten leading Medicare drug plans with four benchmarks: (1) the drug prices negotiated by the federal government and available on the Federal Supply Schedule; (2) the drug prices paid by consumers in Canada; (3) the drug prices currently available on-line through Drugstore.com; and (4) the drug prices currently available at Costco stores. The drugs whose prices are evaluated in the report are the ten best-selling drugs among seniors in 2004.

The report finds that the complicated Medicare drug benefit now being offered to seniors has not succeeded in reducing drug prices. The average drug prices offered by the ten leading Medicare drug plans are higher than each of the four benchmark prices. Specifically, the report finds that the drug prices offered by the Medicare drug plans are:

• Over 80% higher than the prices negotiated by the federal government.
  
  
• Over 60% higher than the prices available to consumers in Canada.
  
  
• Over 3% higher than the prices available on Drugstore.com.
  
  
• Almost 3% higher than the prices available at Costco.
  
  

These findings have significant implications for seniors, federal taxpayers, and the design of the Medicare drug benefit. For seniors, high drug prices increase out-of-pocket costs and reduce purchasing power, especially for those whose drug spending falls within the "donut hole," where seniors are responsible for paying 100% of their drug bills. For taxpayers, high drug prices increase the costs of funding the Medicare drug benefit. And for the program itself, high drug prices call into question whether the vast complications injected into Medicare Part D by allowing private insurers to offer competing drug plans are providing any tangible benefits to anyone but drug manufacturers and the insurers themselves.

Comparison of Medicare Drug Plan Prices to Federally Negotiated Prices

The prices offered by the ten Medicare drug plans are substantially higher than the prices negotiated by the federal government. For the ten Medicare drug plans, the average price for a one-month supply of each of the ten drugs is $1,158. In comparison, the price negotiated by the federal government for the same drugs is just $630. In percentage terms, the prices offered by the Medicare drug plans are 84% higher than the federally negotiated prices. Figure 1.

For some plans, the price differences are even greater. Of the ten Medicare plans analyzed, the Advantra Rx Premier plan, offered by Coventry Healthcare, has the highest prices for the ten drugs. The prices offered by this plan for the ten drugs ($1,241) are 97% higher than the federally negotiated prices.

For specific drugs, the price differences can exceed or approach 100%. The Medicare drug plans offer an average price of $113 for a one-month supply of Protonix, the heartburn medication manufactured by Wyeth. This is 437% higher than the $21 price negotiated by the federal government. The Medicare drug plans offer an average price of $132 for a one-month supply of Zocor, the hypertension medication manufactured by Merck. This is 90% higher than the $69 price negotiated by the federal government.

Comparison of Medicare Drug Plan Prices to Canadian Prices

The prices offered by the ten Medicare drug plans are substantially higher than the prices paid by consumers in Canada. For the ten Medicare drug plans, the average price for a one-month supply of each of the ten drugs is $1,158. The Canadian price for the same drugs is $717. In percentage terms, the prices offered by the Medicare drug plans are 61% higher than the Canadian prices. Figure 2.

For some plans, the price differences are even greater. Of the ten Medicare plans analyzed, the Advantra Rx Premier plan has the highest prices for the ten drugs. The prices negotiated by this plan for the ten drugs ($1,241) are 73% higher than the Canadian prices.

For specific drugs, the price differences can exceed or approach 100%. The Medicare drug plans negotiated an average price of $135 for a one-month supply of Prevacid, the ulcer medication manufactured by Tap Pharmaceuticals. This is 114% higher than the $63 Canadian price. The Medicare drug plans negotiated an average price of $85 for a one-month supply of Celebrex, the arthritis medication manufactured by Pharmacia. This is 91% higher than the $45 Canadian price.

omparison of Medicare Drug Plan Prices to Drugstore.com Prices

The prices offered by the ten Medicare drug plans are higher than the prices currently available to consumers in the United States through the popular on-line pharmacy at Drugstore.com. For the ten Medicare drug plans, the average price for a one-month supply of each of the ten drugs is $1,158. At Drugstore.com, these ten drugs can be purchased for just $1,119. The average prices negotiated by the Medicare drug plans are over 3.5% higher than the Drugstore.com prices.

For some plans, the price differences are even greater. Of the ten Medicare plans analyzed, the Advantra Rx Premier plan has the highest prices for the ten drugs. The prices negotiated by this plan for the ten drugs ($1,241) are 11% higher than the Drugstore.com prices.

For specific drugs, the price differences can exceed 5%. The Medicare drug plans offer an average price of $128 for a one-month supply of Plavix, the cholesterol medication manufactured by Bristol-Myers Squibb. This is 9% higher than the $117 Drugstore.com price. The Medicare drug plans offer an average price of $135 for a one-month supply of Prevacid. This is 8% higher than the $125 Drugstore.com price.

The ten Medicare drug plans do offer a mail-order option with lower prices for seniors who need - and can afford - to buy a three-month supply of drugs. However, even the mail-order prices offered by the Medicare drug plans do not represent appreciable discounts. The average cost of a three-month supply of the ten drugs through the Medicare drug plans is $3,200. The cost of the same drugs from Drugstore.com is $3,222, virtually identical.

Comparison of Medicare Drug Plan Prices to Costco Prices

The prices offered by the ten Medicare drug plans are higher than the prices currently available to consumers in the United States at Costco stores. For the ten Medicare drug plans, the average price for a one-month supply of each of the ten drugs is $1,158. At Costco, these ten drugs can be purchased for just $1,126. The average prices negotiated by the Medicare drug plans are 2.9% higher than the Costco prices.

For some plans, the price differences are even greater. Of the ten Medicare plans analyzed, the Advantra Rx Premier plan has the highest prices for the ten drugs. The prices negotiated by this plan for the ten drugs ($1,241) are 10% higher than the Costco prices.

For specific drugs, the price differences can exceed 5%. The Medicare drug plans offer an average price of $113 for a one-month supply of Protonix. This is 10% higher than the $103 Costco price. The Medicare drug plans offer an average price of $128 for a one-month supply of Plavix. This is 7% higher than the $120 Costco price.