Medicare Is Overpaying for Generic Drugs

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To fill prescriptions, pharmacies purchase drugs wholesale and are reimbursed by insurers. In order to be reimbursed, pharmacies must adhere to contractual obligations that allow insurers to take back money in certain circumstances, such as when the reimbursement to the pharmacy is higher than a certain threshold or if the pharmacy’s cost of acquisition is very low. These ‘clawbacks’ by Part D Plans can be financially devastating to a pharmacy.

“It doesn’t make sense that insurers would overpay for drugs, then use clawbacks to retroactively adjust payments after the patient has paid their co-payment,” said co-author Sean D. Sullivan, PhD, professor of pharmacy at the University of Washington. “This practice is opaque and ultimately harms patients and pharmacies.”

The researchers gathered and analyzed data from the Centers for Medicare and Medicaid Services (CMS), focusing on spending and reimbursement data for the 50 generic drugs that Medicare Part D spent the most on in 2021. They found that some Medicare Part D sponsors were reimbursing at much higher rates than what pharmacies spent to acquire the drugs.

“The results are alarming,” said Hernandez. “We are talking about markups of 6000% or 7000% in some cases.”

In one of the most dramatic examples, the researchers found that insurers were reimbursing pharmacies an average of $126 per tablet for a cancer drug that cost $4.20 per tablet to the pharmacy. This corresponds to an average markup of 3000%, or $3600 per 30-day prescription. Some insurers paid even more.

“Seniors are clearly paying more for their medications as a result of these markups,” said Hernandez. “More research is needed to confirm the scope of these practices, but the evidence is concerning.”

Full link to study:

Co-authors include: Nico Gabriel at UC San Diego, Anna Kaltenboeck at ATI Advisory, Cristina Boccuti at West Health Policy Center and Ryan N. Hansen at the CHOICE Institute, School of Pharmacy, University of Washington.

This study was funded by West Health Policy Center.

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