Negotiated Prices: More Savings for Medicare?

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 Medical Association.

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Crunching the Numbers

First, the doctors came up with a fictional patient -- an unmarried person with a yearly income above 150 percent 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.

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Brand-Name Drug Cost Savings

The imaginary patient would save about 11 percent annually on the heart drugs by using the Medicare card, compared to buying the drugs at normal online retail prices.

"However, the Denver VAMC could supply the same regimen for 60.5 percent less than drugstore.com and 55.8 percent less than the Medicare discount plan," write the doctors.

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.

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Generic Drug Cost Savings

The pattern was the same for the generic drugs. The Medicare card shaved about 40 percent off the generic heart drugs' annual costs.

"However, the Denver VAMC could supply the same regimen for 77 percent less than drugstore.com and 61.8 percent less than the Medicare discount plan," write the doctors.

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 percent annually on the costs of prescription medicines under coverage from the anticipated prescription card plan," write Hayes and colleagues.

By Miranda Hitti, reviewed by Michael W. Smith, MD

SOURCES: Hayes, J. The Journal of the American Medical Association, July 27, 2005; vol 294: pp 427-428. Medicare.gov