Researchers at UC San Diego and other institutions have found that private health insurers that sponsor Medicare Part D are artificially inflating the costs of certain generic drugs by overpaying pharmacies, it was announced Tuesday.
According to the research, published in Tuesday's Journal of the American Medical Association, this inflation is one of the reasons costs of prescriptions can remain high.
"For instance, if a patient pays 30% as a copayment for a drug, that 30% would be applied to the inflated price, which could mean higher out-of-pocket costs for seniors," said corresponding author Inmaculada Hernandez, professor at UCSD Skaggs School of Pharmacy and Pharmaceutical Science.
Medicare is the single largest provider of health insurance in the United States, serving 63.8 million senior citizens as of 2022. Of these, three-quarters are enrolled in optional Medicare Part D plans, which provide outpatient prescription drug coverage to seniors through private insurance companies. According to the report, in 2022, Medicare paid more than $160 Billion for prescription drugs, making it the single largest payer of pharmaceuticals in the nation.
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Generic over-reimbursement is one of the areas targeted for reform by the United States Senate, after anecdotal evidence submitted earlier this year by the non-profit manufacturer CivicaRx raised concerns about Part D sponsors potentially over-reimbursing pharmacies for abiraterone, a cancer drug, a statement from UCSD read.
However, whether Part D Plan sponsors were engaging in this over-reimbursement has been an outstanding question.
"This is the first study to investigate whether these practices actually take place in the Medicare Part D program," Hernandez said.
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"In order 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," the report reads.
These "clawbacks" by Part D Plans can be financially devastating to a pharmacy, the researchers say.
The results are alarming. We are talking about markups of
Inmaculada Hernandez, study corresponding author and professor
6000% or 7000% in some cases.
at UCSD Skaggs School of Pharmacy and Pharmaceutical Science
"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, professor of pharmacy at the University of Washington. "This practice is opaque and ultimately harms patients and pharmacies."
And the markups, taken from data at the Centers for Medicare and Medicaid Services, were substantial.
"The results are alarming," Hernandez said. "We are talking about markups of 6000% or 7000% in some cases."
According to the researchers, in one of the most dramatic examples, they 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 $3,600 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."
Researchers at West Health and the University of Washington also contributed to the report.
