Costco Prescription Distribution System Could Have Saved Medicare $2.6 Billion, Study Finds

Medicare spent billions of dollars more than Costco on the same generic drugs, according to a research letter published by JAMA Internal Medicine.

More precisely, Medicare overspent by $2.6 billion in 2018, a bigger gap than overspending seen the year prior.

This finding comes from researchers who developed data from 184 generic drugs commonly prescribed in 30-day or 90-day supplies. The data only included generic drugs because manufacturers do not pay rebates to pharmacy benefit managers (PBM) or plans. The team from the University of Southern California compared the amount Medicare pays for these commonly prescribed generic prescriptions in Part D with prices for the same drugs available at Costco to patients without insurance.

Lead author Erin Trish, PhD, stated in the research letter, “Medicare overspent by 13.2% in 2017 and 20.6% in 2018 compared with Costco member prices for these prescriptions,” including, “Total overspending increased from $1.7 billion in 2017 to $2.6 billion in 2018.”

There was also significantly more overspending in the 90-day prescription fills than 30-day fills. In 2018, Medicare overspent on 90-day fills by 29.4% and 30-day fills by 7.3%. In 2017, Medicare actually spent less than Costco on 30-day fills by 3%, but still overspent on 90-day fills by 25.7%.

Compared to the Costco member price, Medicare overspent on 43.2% of all 30-day and 90-day prescription fills for the 184 products included in 2018. Overspending was most common on 90-day fills (52.9%).

Medicare Part D is administered through private plans that negotiate via pharmacy benefit managers (PBMs), and those benefits are often not passed on to the government or the patient. Medicare also cannot intervene in these negotiations or publish specific details on them.

“Intermediaries are especially important because each one adds a layer of complexity that increases the costs borne by patients and payers,” said author Karen Van Nuys, executive director of the USC Schaeffer Center’s Value of Life Sciences Innovation Program and assistant professor at the USC Price School of Public Policy. “We need to look at whether they are also adding comparable value.”

This does not only affect Medicare as a program. Medicare beneficiaries ended up spending more out-of-pocket (OOP) on some prescriptions than if they paid Costco’s cash price. In 2018, OOP median costs for Medicare Part D beneficiaries were $1 for preferred generic medications and $6 for nonpreferred generic medications. The Costco member price fell below the OOP payment for patients with Medicare insurance by 9% in 2017 and 11% in 2018. In both years, more than 80% of all Costco fills cost less than $20, and more than 98% cost less than $50.

“There is lots of price competition among manufacturers for these drugs but that competition isn’t benefiting the consumer,” Van Nuys added.

Trish stated that these findings show a clear solution. “With generic medications accounting for 22% of Part D spending, eliminating generic overspending could significantly reduce beneficiary premiums and federal spending.”

Trish is the 2018 recipient of the Seema S. Sonnad Emerging Leader in Managed Care Award, given by The American Journal of Managed Care® to an early career investigator whose initial contributions point to substantial achievements in the field.

Reference

Trish E, Gascue L, Ribero R, et al. Comparison of Spending on Common Generic Drugs by Medicare vs Costco Members. JAMA Intern Med. Published online July 6, 2021. doi:10.1001/jamainternmed.2021.3366