Your tax dollars at work: Govt. buys hundreds of billions worth of overpriced drugs each year

Tuesday, July 01, 2014 by: J. D. Heyes
Tags: tax dollars, medication drugs, government programs

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(NaturalNews) Scores of Americans are discovering that natural, alternative treatments for many of their most common ailments is preferable to ingesting gene-altering medications, but through taxes they are nonetheless helping to fund hundreds of billions of dollars in government medication spending each year, through a variety of federal healthcare programs.

What's more, the way in which Big Government buys Big Pharma isn't very efficient, thought that likely doesn't surprise you.

According to Bloomberg BusinessWeek, purchases of drugs by the Defense Department, Medicare, Medicaid and other federal benefits programs amount to more than one-quarter of all U.S. retail prescription drug spending, a figure that reached $263 billion in 2013 (download the report as a PDF here):

You might think that kind of buying power would entitle Uncle Sam to get the best price all the time. If only that were true. The government pays vastly different prices for medicines depending on which office is buying them, according to a new report (PDF) from the Government Accountability Office.

Not all payment plans are equal

Medicaid -- a healthcare program aimed at providing coverage to the poor in a federal-state partnership -- is able to get the best deal, the reports have noted. Medicare Part D, which covers elderly Americans through partnerships with private insurance, pays the most for brand-name drugs. Also, the Department of Defense pays the most for generics, according to the GAO's analysis of what the government was paying for 78 common drugs in 2010.

BusinessWeek reported that there are a number of reasons why these examples occur, but no good reasons for them. By federal statute, the Pentagon and Medicaid are able to reap some discounts and rebates from drug makers that result in lower costs. The GAO examined the net cost per dose that each program was paying; prices discovered are what the U.S. pays after rebates and after beneficiaries contribute their share (see the chart here). For Medicaid, drug manufacturers' rebates cut the price of drugs by more than half.

It's a bit of a shell game. Discounts in one program are often offset by higher prices somewhere else -- for either the government or private insurers or both. However, the online financial news magazine reports:

The GAO makes this clear. Theoretically, the government could save billions if it got the Medicaid rate for all the pharmaceuticals it buys--69 percent lower than Medicare gets for brand-name medicines--if drugmakers didn't raise other prices to make up for the lost revenue.

'It's anyone's guess if taxpayers are getting their money's worth'

"The magnitude of these potential offsetting price increases could depend on a number of factors," the GAO wrote. "For example, if a large federal program with many beneficiaries became eligible for the discounts, manufacturers might choose to raise prices by a greater amount than they would if a smaller program with fewer beneficiaries became eligible. Manufacturers might choose to raise prices more for drugs with fewer competitors than for drugs with many competitors. Furthermore, because federal prices are generally based on prices paid by nonfederal purchasers such as private health insurers, manufacturers would have to raise prices to those purchasers in order to raise the federal prices."

The questionable pricing can be found throughout the American healthcare system, BusinessWeek noted. The reason for that is unequal levels of pay; the government, via Medicare, pays doctors and hospitals less than commercial insurance plans, even less via Medicaid. So what happens is that people who buy private health insurance are essentially subsidizing the lower cost coverage for people on Medicare and Medicaid.

Healthcare companies tend to manage their "payer mix" to ensure that they have enough revenue coming in from private plans to cover patients whose coverage does not pay so well.

"All this adds another layer of complexity and confusion to the pharmaceuticals marketplace," reports BusinessWeek. "Medicare's drug plan, Part D, covered 33 million Americans in 2011. State Medicaid programs insured 71.5 million low-income people, and the military covered 9.7 million. Together the programs spent $71 billion on retail prescriptions. It's anyone's guess if taxpayers got their money's worth."

Sources:

http://www.businessweek.com

http://www.cms.gov [PDF]

http://www.gao.gov [PDF]