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Costco Offers Better Prices Than Medicare 50% of the Time: Study

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What You Need to Know

  • Policymakers need to take a closer look at the practices that allow for intermediaries to negotiate drug prices on behalf of Medicare but don’t necessarily pass those savings on to beneficiaries and taxpayers.
  • Researchers determined that Medicare plans paid more than Costco members on almost 53% of 90-day fills.
  • USC researchers suggest drug pricing reform also should span the full distribution system and include generic drugs.

Costco has a reputation for low prices, on everything from bulk frozen food to 60-inch TVs, and even its pharmacy. In many cases, Costco’s prescription drug prices are better than Medicare prices.

This suggests that policymakers need to take a closer look at the practices that allow for intermediaries to negotiate drug prices on behalf of Medicare but don’t necessarily pass those savings on to beneficiaries and taxpayers.

That’s the takeaway by University of Southern California researchers who compared Medicare Part D prescription drug prices with those paid by Costco members and found that the federal government overpaid on roughly half of the most common generic medicines in 2018.

“Our analysis shows that in systems like Costco’s, where incentives are set up to deliver value directly to the consumer at the pharmacy counter, that’s what happens,” Erin Trish, associate director of the USC Schaeffer Center for Health Policy and Economics, an assistant professor of pharmaceutical and health economics at the USC School of Pharmacy, and one of the study’s authors, said in a statement.

“It’s time to fix those incentives in the Medicare Part D system to put the patient first,” she added.

USC’s analysis, titled “Comparison of Spending on Common Generic Drugs by Medicare vs. Costco Members,” appeared July 6 in a research letter in JAMA Internal Medicine.

Researchers determined that Medicare plans paid more than Costco members on almost 53% of 90-day fills analyzed in 2018. On all 30- and 90-day prescription fills, Medicare plans overpaid 43% of the time.

What’s more, across more than 1.4 billion Medicare Part D claims for 184 products, Medicare plans overspent by 13% in 2017 and almost 21% in 2018, compared to Costco member prices.

More than 45 million Americans are enrolled in Medicare Part D, which provides coverage for outpatient prescriptions. Costco, meanwhile, boasts 80 million members in the United States, operates in more than 500 locations, and offers nationwide shipping.

Pricing Reform and Generic Drugs

In a news article published on USC’s website, researchers explained that “Medicare Part D is administered through private plans that negotiate via pharmacy benefit managers, or PBMs, on behalf of the Medicare system. …

“The problem, say the [study’s] authors, is PBMs and other intermediaries in the system do not seem to be passing all of the savings from the negotiated prices to the plans and the patients.”

“There is lots of price competition among manufacturers for these drugs, but that competition isn’t benefiting the consumer,” noted Karen Van Nuys, executive director of the USC Schaeffer Center’s Value of Life Sciences Innovation Program, assistant professor at the USC Price School of Public Policy, and another author of the study. “These are not small-market drugs where there might be only one supplier who can name their price.”

USC researchers suggest drug pricing reform also should span the full distribution system and include generic drugs.

“Efforts to reduce prescription drug prices tend to focus on brand-name medicines, but the opaque pharmaceutical supply system can also cause health plans and taxpayers to overpay for generics,” said Geoffrey Joyce, director of health policy at the USC Schaeffer Center and chair of the Department of Pharmaceutical and Health Economics at the USC School of Pharmacy.

Funding for this study was provided by the USC Schaeffer Center.