Medicare could use VA policy to cut drug costs, study says Program could save U.S. more than $1 billion a year

November 27, 1998|By LOS ANGELES TIMES

WASHINGTON -- The Medicare system and millions of its beneficiaries could save more than $1 billion a year on prescription drugs if Medicare used the same price schedule as the Department of Veterans Affairs, according to a government investigation.

A study of 34 drugs shows that Medicare pays from 15 percent to a whopping 1,600 percent more than the VA for the identical compounds.

"Drug industry charges to Medicare are a scandal," said Rep. Pete Stark, a California Democrat who requested the investigation by the Health and Human Services Department's inspector general. A copy of the report was made available to the Los Angeles Times this week.

The findings could be of particular interest to the federal Medicare Commission, created by Congress to find ways to bring the program's costs under control, when it meets Wednesday. Drug prices are among the fastest-growing components of national health spending.

The $1.03 billion that Medicare could have saved by using VA purchasing methods represented almost half of the $2.07 billion paid last year for the 34 drugs discussed in the report.

The Department of Veterans Affairs -- which runs a network of hospitals -- buys directly from manufacturers or wholesalers and uses several methods to hold down costs, notably getting discounts for volume purchases.

Medicare, by contrast, simply reimburses doctors, hospitals or other suppliers for the pharmaceuticals used by beneficiaries. For many drugs, Medicare pays 95 percent of the average wholesale prices as reported in industry publications.

There is no discount for volume purchases, although Medicare is a huge buyer. And individual doctors and hospitals can get discounts without making the savings available to Medicare.

The report is the latest in a series of studies showing that "actual wholesale prices available to physicians and suppliers are often significantly lower" than the payments by Medicare, the inspector general's office noted.

Medicare does not cover pharmaceutical products for general use. Instead, it pays for use of drugs in special high-cost circumstances, such as chemotherapy and pain medications in cancer cases, and drugs used in connection with kidney dialysis and organ transplants. Medicare also pays for flu vaccines and hepatitis B vaccines.

Medicare's payments for each of 34 drugs studied was greater than the VA acquisition cost, according to the inspector general's study.

For example, the VA paid a median price of $5.68 for a dose of pneumococcal vaccine, used to prevent pneumonia, compared with the $12.48 paid by the Health Care Financing Administration, which runs Medicare.

The biggest price discrepancy was for leuvorcorin calcium, with the VA paying $1.18, while Medicare paid $20.45.

Responding to the report, the drug industry said patients could be hurt if Medicare adopted a more stringent price schedule. "There could be very restricted access to medicines," said Alixe Glen, vice president of public affairs for the Pharmaceutical Research and Manufacturers of America.

The chief Medicare administrator, Nancy-Ann Min DeParle, in her review of the report, called the findings "extremely disturbing." She indicated that the Clinton administration favors a change in the law to allow Medicare to reduce its payments for drugs.

Stark said DeParle should use her powers as chief of the Medicare program to reduce payments for drugs. "Please use every administrative authority you have to lower drug costs for seniors," he said in a letter to her.

Stark said benefits should be expanded to provide general drug coverage, with the financing coming from a proposed $14 billion annual assessment on the tobacco industry and costs controlled by a VA-type purchasing system.

Pub Date: 11/27/98

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