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June 24, 2022

Could cost plus drug pricing save Medicare billions?

Daily Briefing

    Medicare could have saved billions on generic prescription drugs if they had been purchased through Mark Cuban's discount online pharmacy, which offers significantly lower prices on many generic medications, according to a new study published in the Annals of Internal Medicine. But Advisory Board's Chloe Bakst weighs in to explain why Medicare drug spending is about much more than just the cost of prescriptions.

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    Mark Cuban's online discount pharmacy

    According to HealthLeaders, spending on prescription drugs has significantly increased from $30 billion in 1980 to $335 billion in 2018. In addition, the United States in 2019 spent more than $1,000 per capita on prescription drugs, much higher than what was spent in other high-income countries.

    To address the rising cost of prescription drugs, Cuban in January launched the Mark Cuban Cost Plus Drug Company (MCCPDC), an online pharmacy that offers significant discounts on generic medications by acting as both a retailer and its own pharmacy benefit manager.

    According to the Wall Street Journal, MCCPDC purchases the generic drugs directly from their manufacturers, and resells them to patients after adding on a flat 15% acquisition fee, a $3 pharmacy labor fee, and a $5 shipping fee. In addition, the pharmacy also recently launched "Price Drop Fridays," in which it offers discounted prices for a variety of medications every week.

    When the pharmacy first launched, it offered 100 generic medications, including those for cancer, diabetes, and gastrointestinal and heart conditions. Since then, the number of medications offered has grown to over 700 as of early June, and the pharmacy said it is "continuously working to add new drugs as quickly as possible."

    "Not everyone sets the goal of being the lowest cost producer and provider," Cuban said. "My goal is to make a profit while maximizing impact." Currently, more than 400,000 people have created accounts with MCCPDC, and around half have ordered prescriptions through the company's online mail-order pharmacy, the Journal reports.

    Could Cuban's pharmacy save Medicare billions in generic drug costs?

    According to a new study published in the Annals of Internal Medicine, Medicare could have saved billions of dollars if it had purchased generic drugs through MCCPDC instead of going through the existing generic pharmaceutical distribution and reimbursement system.

    For the study, researchers from Harvard Medical School analyzed the cost of 109 generic drugs offered by MCCPDC in February and compared them to drugs offered through Medicare Part D plans. In total, 89 comparable drugs were identified, and pricing was calculated for both minimum (30-day) and maximum (90-day) quantities of the drugs.

    Overall, the researchers found that Medicare could have saved 37%—or $3.6 billion—of the $9.6 billion it spent on 90-day supplies of 77 out of 89 different generic medications in 2020. And if a 30-day supply had been purchased instead, Medicare could have saved $1.7 billion on 42 of the 89 comparable generic drugs.

    In addition, the drug with the highest cost savings was esomeprazole, a generic drug that treats acid reflux and heartburn. In 2020, Medicare paid $1.77 per pill for the drug, but MCCPDC offers the drug at 19 cents per pill. If Medicare had ordered 90-day supplies of esomeprazole from MCCPDC, they could have saved $293 million.

    According to the researchers, future savings through MCCPDC may be even higher since the pharmacy has significantly increased the number of generic drugs it offers since the analysis was originally conducted.

    Ultimately, the study suggests that Medicare is overpaying for many generic drugs—a conclusion that is consistent with previous research comparing Medicare spending with generic drug prices at Costco. "The lower prices from a direct-to-consumer model highlight inefficiencies in the existing generic pharmaceutical distribution and reimbursement system," the researchers wrote.

    "We see that Medicare is overpaying because of the complexity of the supply chain with multiple actors," said Stacie Dusetzina, an associate professor of health policy at Vanderbilt University Medical Center, who was not involved in the study. "We've created this behemoth system, and this alternative shows that if you strip out as many of those actors in the supply chain as possible, you can lower prices and still make a profit."

    Although companies offering prescription drugs directly to consumers like MCCPDC can offer savings on some drugs for select patients, the researchers said policy reforms are need to "improve price transparency, increase competition for high-cost generic drugs, prevent annual price increases, and limit pharmacy and distribution costs" to ensure that essential generic drugs are affordable for all Americans. (Silverman, STAT+ [subscription required], 6/20; Cheney, HealthLeaders, 6/20; Walker, Wall Street Journal, 6/20; Lalani et al., Annals of Internal Medicine, 6/21)

     

    Advisory Board's take

    Our take: Medicare drug spending is about more than just cost

    By Chloe Bakst

    The numbers don't lie: A new study published in Annals of Internal Medicine found that Medicare could have saved as much as $3.6 billion in one year if they purchased select generic medications from Mark Cuban Cost Plus Drug Company (MCCPDC). But the numbers also don't give the full picture.

    For Medicare patients, this headline could ring some warning bells about the value they are getting from their Medicare Part D benefits. Are they paying more for their medications than they should be? Maybe so. But the issue is more complex than cost alone, for a few reasons.

    1. Traditional pharmacies and Part D coverage provide more services than just dispensing pills. In 2019, the average number of prescriptions per Medicare Part D beneficiary was 54 per year. Patients may find value in having one pharmacy that can sync up refills and look across all of their medications to make sure that there are no contraindications for new drugs. In addition, many Part D plans also offer medication therapy management programs, which can ensure that patients' medications are appropriate and can even help patients to reduce their number of medications and better manage side effects. These services are not provided by MCCPDC.

    2. Community pharmacies play a role in supporting independence for seniors. For some seniors, a trip to the pharmacy is more than just a transaction. It's also an opportunity to check in with someone who cares about them. And using their community pharmacy gives them confidence that they will be able to get the right medication when they need it. Switching to an online pharmacy may mean that they must rely on a friend or relative to manage their medications.

    3. Part D plans are designed to cover all of a patient's medications, not just their generics. 60% of Medicare Part D's spending in 2019 can be attributed to 250 top-selling, brand name drugs with one manufacturer and no generic or biosimilar competitors. For a patient who has a high-cost specialty or brand medication, not only are these medications not available through Mark Cuban's pharmacy, but purchasing cash-pay medications outside of Part D may mean that a patient ultimately takes longer to reach their deductible or out-of-pocket maximum and may ultimately spend more.

    Lastly, the authors of the study noted that the greatest savings from MCCPDC came from 90-day prescription purchases that cut down on distribution fees. For seniors that feel well-managed with a 30-day prescription, they may be uninterested or unwilling to switch—especially if doing so disrupts their established medication regimen.

    At the end of the day, Medicare is unlikely to require patients to purchase generics from a cash pay, online pharmacy anytime soon. Instead, it will be up to individual patients to decide, based on their own situation, whether they want to save money by switching their pharmacy to the MCCPDC or maybe even skimp on their Part D coverage altogether. However, as MCCPDC continues to shine a spotlight into the shadowy world of drug pricing, they are likely pushing plans to account for their markups and prices more aggressively. Mark Cuban's biggest impact on drug costs may come through the questions he raises even more than the prescriptions he fills.

     

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