Medicare Could Have Saved $3.6B on Generic Drugs | Hacker News Reader

Medicare Could Have Saved $3.6B on Generic Drugs

drugs.com

172 pointslxm83 comments

Not just generics.

Ever get a coupon from a drug manufacturer that drops your copay from hundreds of dollars to $10 or $20? Ever wonder why?

It’s because Medicare gets an automatic discount (I think 20% these days but I’m no longer in the biz) from the manufacturer’s official price. So they simply set the official price at some huge figure and rake in huge bucks from the largest buyer, Medicare.

Then they negotiate with the for profit insurance companies and subsidize the copays so that nobody complains to their congress person.

It’s a huge rip off. Medicare should be paying a discount to the median price actually paid on the open market. But apparent nobody has an incentive to fix this.

> It’s a huge rip off. Medicare should be paying a discount to the median price actually paid on the open market. But apparent nobody has an incentive to fix this.

Then they start issuing rebates instead of discounts?

Or yeah, sure, everyone's definitely paying $100 for this quantity of this drug, then we kick insurance back $80 for advertising for every unit that makes it to an end consumer through them.

There's no easy way out of price discovery when you are the largest buyer, because it becomes more than profitable enough to structure sales to exploit your policy to make up for the loss in doing the structuring.

That's assuming structing actually works here. It's not hard to define average price as cost after all incentives be they rebates or raffle tickets with “zero nominal value.”

The Federal government and government in general is really good at commodity procurement. The processes and legal requirements give them the ability to price and fairly procure even single source commodities.

I’ve done scaled procurements at a very large, not federal level. We were almost always 10-20% lower unit cost than large corporate, and sometimes even better. At the Federal level, the law gives them “most favored” status, and they will sue vendors for fraud if they offer lower prices for the same commodity without lowering the federal cost.

“It’s hard” is a common refrain for policy discussions. “That’s bunk” is my reply. Policy without graft isn’t much harder than using high and mighty principles to enrich people at taxpayer expense.

Most drugs aren’t commodities.

The GP wasn't asserting that drugs are a commodity. They were arguing against the blanket implication that the federal government can't get efficient price discovery because it's the whale in the market. The GP is pointing out somewhat similar markets where the US is doing very efficient buying, even for single-source commodities (with parallels to single-supplier drugs), despite presumably also being the whale in the market.

> Then they start issuing rebates instead of discounts?

They already do, and it's a huge amount of money. It's how they keep prices opaque. There is a list price (retail price), the pharmacy dispenses the drug, and gets reimbursed a variable amount from the insurance company (called the reimbursement price), usually about 50% of the list price. Then, the insurance company gets a kick-back from the drug manufacturer (usually for non-generic drugs). Medicare also gets these kick-backs, and they stopped disclosing the actual amount around 2016.

This is how most single payer systems work.

Australia [1] uses a broader spectrum of metrics but price of drugs in other international markets is a substantial part of it's analysis and negotiations.

[1] https://www.pbs.gov.au/industry/pricing/pbs-items/historical...

It’s by design. The republican position was that allowing Medicare to negotiate drug prices would amount to price controls. They also forbade the using of Federal funds to reimport drugs from countries like Canada who negotiate prices. It’s a specious argument with predictable outcomes that were in fact predicted and widely discussed at the time the legislation was enacted.

Part D plans are privately administered by companies that are supposed to compete with each other. The prices aren't just whatever the drug companies want.

Interesting how there doesn't seem to be much competition.

https://www.kff.org/medicare/issue-brief/medicare-part-d-a-f...

“The average Medicare beneficiary has a choice of 54 Medicare plans with Part D drug coverage in 2022, including 23 Medicare stand-alone drug plans and 31 Medicare advantage drug plans.

This is correct and Medicare Part D came in under budget due to private negotiation of drug prices.

I love how accurate posts on HN get aggressively downvoted off they go against the narrative.

The fact is that a manufacturer sells a product at 80% gross margin to a distributor. Attempting to negotiate with the manufacturer is illegal. The resellers of said product go through an intense competitive process and earn a 2-4% margin. So the plans will offer cheap loss leaders… “free metformin!” and make it up elsewhere. Meanwhile, the government is paying $5/pill for some amoxicillin reformulation or whatever.

What “narrative” are you upset about again? Personally, I don’t think getting a stream of risk-free government guaranteed business should yield higher margins than coke dealers.

That's not how it works at all.

This is Medicare Part D - the plans are administered by private insurance companies - Medicare just pays the premiums, they don't pay directly for the drugs.. Private insurers compete for Medicare patients to sign up for their plans.

Private insurers do negotiate directly with manufacturers. Studies I've seen show they get similar (or better!) price they do with their private insurance plans.

The narrative I'm complaining about is - "there is no negotiation". This comments are typically by people who don't even know how it works.

Sure, they fight for pennies for plan administration, but don’t have the market power to have any leverage, by design.

It’s not a meaningful competitive process.

You’re confusing two different things: monopsony power versus competitive pricing.

Monopsony power is when the market dominance of a buyer allows it to drive prices below the efficient level. But monopsony prices aren’t necessarily efficient prices. Wal-Mart’s pricing power, for example, has well demonstrated negative impacts on the upstream supply chain.

A competitive market, with numerous buyers and sellers, by contrast, will have higher prices than a market with a monopsony buyer. But at least in theory those prices will be efficient.

> They also forbade the using of Federal funds to reimport drugs from countries like Canada who negotiate prices

Seems easier to grant Medicare most-favored nation status for prices since that's effectively what reimporting does.

Medicare doesn’t cover drugs, except for drugs administered in a hospital setting.

The Republican position was that drug coverage should be through private insurance (Medicare Part D plans), instead of through Medicare itself. Part of the rationale was that Medicare would have monopsony power over drug pricing: https://www.britannica.com/topic/monopsony, as opposed to a compatible market with multiple buyers and sellers.

The Medicare Part D plans themselves assuredly do negotiate drug prices: https://crsreports.congress.gov/product/pdf/IF/IF11318 (“Part D sponsors, working with pharmacy benefit managers (PBMs), negotiate prices with drug manufacturers and contract with pharmacies to dispense drugs to plan enrollees. Negotiated price concessions mainly take the form of rebates (after-sale reductions) from a manufacturer’s list price for brand-name drugs.”).

It doesn't just let them fuck Medicare, it lets them fuck private insurance too.

I'm on a med that's $12k every two months. If I were on a high deductible plan, they'll happily cover that $12k for the first go, because I meet my deductible and then insurance pays the other five doses. The cost to them is basically nil; chances are the actual one mililiter of fluid costs them a marginal $20 or so to make.

Like in software (less so in the cloud days), marginal costs are not particularly relevant.

It is when covering $20 of marginal costs gets you past to a bunch of non-marginal costs.

The marginal cost of a cup of coffee is basically nil but I don’t expect a free cup every day from Starbucks.

Other way around.

Starbucks gives you the first cup free, because it means the rest of your cups that year are free to you - you've hit your deductible and soon after your out-of-pocket max - but Starbucks gets to charge insurance $500/cup for them.

If they didn't have the program, no one would pay the first $500 because it's out of pocket, and Starbucks gets nothing. By forgoing the first $500 of revenue they get the rest.

How do I hit my deductible if I didn’t pay for the first dose?

Because in most states, the value of the coupon counts towards your deductible. (By law in some, by standard practice in others.)

https://www.ncsl.org/research/health/copayment-adjustment-pr...

> chances are the actual one mililiter of fluid costs them a marginal $20 or so to make.

quoting production prices when discussing duds is as silly as talking about IP when discussing grocery store item costs. “Bananas at 1$!? They probably didn’t even need to spend any money on inventing it”

When you pay for a drug, your not paying for production, transport or marketing, you’re paying for the 20 years of research that went into bringing it from a random idea of “this might work” to a product on the market, and for the 200 other drugs the company tried unsuccessfully to bring to market along side it.

Now I’m not saying this justifies the prices of all drugs, but it’s silly to discuss pricing while acting like the absolutely largest factor doesn’t even matter.

This isn’t how it works.

You can’t use co-pay cards with publicly funded insurers like Medicare and Medicaid. It’s regarded as “inducement”.

https://www.npr.org/sections/health-shots/2018/05/09/6091508...

Only private insurers can accept co-pay cards.

> It’s a huge rip off. Medicare should be paying a discount to the median price actually paid on the open market. But apparent nobody has an incentive to fix this.

This is utterly wrong. First of all, Medicare Part D covers pharmacy benefits. Part D is supplemental insurance purchased by seniors from a private insurance company. If you are too poor, I think you go on Medicaid. Also, Medicare Part D plans DO pay less than commercial plans.

This study is probably complete B.S. because no one knows how much is paid in drug rebates. Manufacturers pay the insurance companies (including Medicare) huge amounts of money (back) for prescription drug utilization coming from their members. In short, it's a legal kick-back. And I'm not kidding, it's a huge amount of money (like 20% - 30% of the reimbursement price)

U.S. drug pricing is broken for many reasons, and sorry to call you out, but nothing that you said is true. Everybody gets ripped off by big pharma, not just the government.

> It’s a huge rip off. Medicare should be paying a discount to the median price actually paid on the open market.

Non-Medicare federal spending often requires you sign a contract that the government gets the best price you give anyone. Blue Cross negotiates a better rate next month? Medicare automatically uses that one instead.

Ever get a coupon from a drug manufacturer in exchange for all your personal information and some disclosure for them to share your medical information? That is why.

> It’s because Medicare gets an automatic discount (I think 20% these days but I’m no longer in the biz) from the manufacturer’s official price. So they simply set the official price at some huge figure and rake in huge bucks from the largest buyer, Medicare. Then they negotiate with the for profit insurance companies and subsidize the copays so that nobody complains to their congress person.

This is all completely wrong, to a point where I don't even know where to begin to correct it, because there are three separate misconceptions here layered on top of each other.

Not only does Medicare get most-favored-nation pricing (ensuring that they pay less than private insurers do), but pharmaceutical benefits for Medicare are provided under Part D, through for-profit insurance companies.

Furthermore, it is illegal to use copay assistance from manufacturers for brand-name drugs if you are using Medicare or Medicaid.

I have a separate question regarding generics.

I know a medication for a rare disease, which typically costs more than 6 figures, is having its patent expiring soon.

I would love for generic drug makers (ones in India for example?) to come in and start making the drug for cheaper so it is more affordable for families.

However, because it is a rare disease, I don't know if a drug maker would normally be incentivised to do this. But given the sky high costs of the drug pre patent expiration, I think there might be enough demand there for makers to make decent profit.

Say I wanted to give them a nudge, or maybe I get some people who I know are ready to pay for it if they make them, showing to the generic makers the demand is there. Does anyone know how I should go about this or if it's possible? Then again I don't know how regulations and stuff work but just hypothetically.

An interesting question that probably deserves it's own ask HN post.

Maybe contact Mark Cuban’s Cost Plus Drugs? I bet you could write to the guy and get some response. They aren’t manufacturing drugs but may be able to help. Or just contact XYZ large generic drug manufacturer in India

Note: this is less than one half of one percent of total Medicare spending.

A billion here, a billion there, soon you're talking real money

3.6b ($) / 258m (adults) = $14 in taxes per adult in the US, per year.

Or $1.4 M each to America’s Job Creators (tm)

Edit: Wait, these are payroll taxes. There’s no real benefit to the rich because the taxes are capped. Which is why it’s not worth it to do anything about it, as no plutocrats will get significantly more than the masses.

Just that single problem is around ten basis point of average tax. All these problems compound because to find the hundreds of millions to close a fiscal exercise, things will get cut and never repaired after. So any fiscal inefficiency causes much more damage than just the direct problem.

Death by a thousand paper cuts. No one cut is egregious enough to warrant an emergency, yet you still die.

except this is a solution that is often touted to cut spending a lot, and second, it's not like finding new solutions becomes easier as earlier solutions are exhausted. Finding one solution is easy, finding dozens...not so much.

Nope, by default you should apply the 80/20 rule and tackle the big 20% of the costs that cause 80% of spending. Anything else is just pocket money.

I was coming here to say exactly that. Thank you.

It’s important to point out how vast this spending is so that headlines that give dollar figures are balanced and the hyperbolic rhetoric can be put in context.

I would point out that it may end up costing more to source and administer generic drugs than $3.6B and could end up harming the pharmaceutical research economy.

But the study is only for a small subset of that spending.

For that subset the computed saving is $9.6b -> $6.0b.

assuming that held true across the board, that's a ~35% reduction. What if it was only half that? Round down, and say generic policy might 'only' save 15%. 15% of 10s of billions of dollars (hundreds? can't find full numbers right now) is significant.

Not only that but new generic drugs are often more expensive (the first generic manufacturer get 6 month exclusivity to encourage generics).

After that more companies enter the market and prices drop. When Lipitor went generic, the first one was ~30% discount. Now it’s a 95% discount.

If this study just took average spending in the past then compared it to prices today that’s apples and oranges.

Around 2010 I went freelance and was shopping for medical insurance. I'd been on Blue Shield from a previous employer plan and liked them, so I compared their plans.

I was taking one prescription medication that cost $195/month if you paid full retail price. The two plans I was comparing had a $100/month difference in premiums. They were pretty similar in most ways, but the more expensive plan had full coverage for this medication (minus a $20/month copay), and the cheaper plan did not cover it at all.

This was a no-brainer, right? Obviously the more expensive plan would be the better deal.

Some years later I happened to join Kaiser, and their pharmacy page listed the actual cost of the medication: $23/month without insurance, not $195. And if I bought a 100 day supply the total copay for the three month+ refill was $30.

Out of curiosity I checked Blinkhealth and GoodRx, and yes, they each showed a total cost of about $23/month cash payment with no insurance.

what? how? how can they sell it for $195 then? pharmacy knows if you have insurance and then sells it to you for a more expensive pricetag?

$195 was the retail price for the name brand drug. Even though my doctor had prescribed the generic (which I've taken for many years now - in fact I don't think I've ever taken the name brand), the pharmacies were charging the name brand price for the generic unless you had insurance.

One time when Blue Shield messed up on my premium payment and the pharmacy didn't think I had any coverage, I went ahead and paid the full $195 out of pocket to avoid delaying the refill.

That was what got me curious about checking the actual cost of what I was buying.

Here's how I feel about this:

"Nice prescription you've got there. Be a shame if anything happened to it."

> unless you had insurance

nice. not nice.

and I think the same could happen in Europe as well.

This is completely incorrect and fundamentally misunderstands the drug supply chain. The price cost plus lists as typical are just made up. The price they have is just a markup on top of the acquisition price that every pharmacy gets. And the savings the claim are often comparing brand prices to generic prices. First, the consumer view of a brand price is not the same as the 'net price' paid by medicare (there are 20% to even 90% discounts handed by pharma to medicare directly). And second, brands are only dispensed when argued for by the prescriber.

The waste and high prices in the system is generated by pbms taking massive discounts from pharma (of which they keep a %) for brand drugs that shouldnt be covered or often even sold.

Cost plus pharmacy is vaporware - they are a website which applies a flat markup on top of third party pharmacies that will ship you the med. There are no special discounts, they literally aren't doing anything.

I'd like to point out that sometimes a "regular" generic is not an option. For instance, anyone who has a sensitivity to one of the non-active ingredients in a medication is going to jump through a lot of hoops to find medication they can take - including decreased outcomes because of "noncompliance". It is very hard to get approval for compounded medication either through private insurance or through medicare or medicaid. I'm thinking specifically of microcrystalline cellulose, but there are other problematic fillers used in medication.

I don't know the specifics of the USA, but in Europe some generics are sold out, because they are imported usually from India, and the supply chain is heavily broken

This is like a news article/research paper version of a cost savings calculator on a pricing page.

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This makes me want to dig into the research data and build an interactive cost savings calculator with a slider. It would also probably be a great marketing page for Drugs.com

generics arent the same as the original drug. The level of testing required to get a generics approved is ridiculous (basically just a dissolution profile test) and does not give a full picture at all on how the efficacy and safety profile changes in the body.

Indian government's Janaushadhi scheme is for generic push. It is highly successful and one could save 50-70% on genetics. http://janaushadhi.gov.in/

And would have lowered the GDP of the economy, ergo the state will waste taxpayers money to keep the GDP up, even if it means building up a massive national debt.

$3.6 billion is not a lot of money.

Edit: E.g. In 2014, end of life care for age 65+ (final 12 months) is 25% of total Medicare spending.

https://www.kff.org/medicare/issue-brief/medicare-spending-a...

"Medicare Spending at the End of Life: A Snapshot of Beneficiaries Who Died in 2014 and the Cost of Their Care"

$10/person year

Elon Musk would spend $4.20 billion on a joke.

Which is a drop in the bucket relative to overall Medicare spending, sadly..

the problem is most capitalists wouldn't dare venture into that arena due to how intrenched the incumbents are. This makes the market highly inefficient due to lack of competition. Good on Cuban for daring to go whether other capitalists will not. I hope it works out for him.

yeah, good on him, but it'd be so much better if it were an employee co-op. He's still making bank, and eventually could be the amazon of pharmacy undercutting everyone else, and still make a tidy profit.

A non-profit or co-op could do the same thing and only aim for a small revenue target in the green, so they stay afloat and can keep paying payroll, and providing good service as needed.

I'm eventually planning on branching into this area, if I can get my co-op CRM/ERP software platform finished. I'm wanting a system to manage a network of union/worker businesses that work in syndication and encourage loyalty to in-network brands, through benefits, discounts, etc. Think if you had a software to basically combine worker, consumer, and housing co-ops into a sort of network or social net or mutual aid network where volunteering, working as an employee, or just loyalty as a customer dictates if you've qualified to earn a dividend or free healthcare.

That all?

If you're angry about this, I can't imagine how angry you'll be when you find out our government sent 40 billion to pay Ukranian pensions from another illegal proxy war they helped start and have funded for the past eight years.

The US government doesn't care about its citizenry and the two political parties play off one another to further enable their own agendas and further divide the citizenry. They are no different and neither has our best intentions in mind. They do whatever they can to retain and hold onto power, and once in positions of power they abdicate their duties and do whatever they want or fulfill the agenda of whomever they are bought by. The sooner people start realizing this, the better off everyone in this country, and the world will be. It's not like the US is the only country where corrupt and morally bankrupt leaders are running the show.

I wish I had your optimism and think that the money the US sends over is to "pay Ukrainian pensions".

That money will find its way to corporations, corrupt officials, warlords, weapons manufacturers. Very little of that money will be spent to actually help the average people there and ease their suffering.

Oh, I know - most likely it will contribute to more death and destruction or as you described, wind up in some corrupt official / warlord / oligarch's pocket. There are no good guys in corrupt and evil wars, yet people love to try and pick one.

If folks new the whole story behind this war and the history of the region and US / NGO intervention in it, before throwing their support blindly behind a cause because their government and media told them to, I believe the sentiment around this war would be much different and no one would be cheering either side on in it.

It's just like Medicare and prescription drugs though - trusting citizens expect their government to enact policy that has their best interests at heart. Then they don't, and they turn around and vote for them again anyway. Then they'll wag the finger across the aisle and find some other virtuous cause to distract from the fact they're being screwed over by the very leaders they voted for, that turned around and lied to their faces. Military industrial complex, big pharma, our state-run media - It doesn't really matter what sector the federal government decides to get in bed with, people complain about it and then go right back to the polls to signal their willingness and intent to go through with another cycle of it all over again.

At this point the war was inevitable, and turning a blind eye would probably just embolden Russia even more - better to let them meet real resistance in outsider-Ukraine, compared to directly fighting them in some NATO country, like one of the Baltic countries. Not to mention the signal that would send to China.

If one of the goals to the US gov. is to also save American lives, then obviously a proxy war is more favorable than a direct conflict.

Not doing anything at all was never an option for the US - sans of having a Russian puppet ruler as president, and deliberately going for isolationism.

This is comparing to generic drugs from one specific company, based on the notion that the specific company is capable of providing a cheaper generic drug in a situation most favorable to the drug maker (a bulk purchase). It doesn’t actually go into if the generic will actually be a suitable replacement for each patient. For people with complex health needs, like the over 65+ folks on Medicare, it makes total sense to be on precise, non-generic drugs. I’ve known plenty of people with complex health needs that cannot take the generic, for whatever reason. Hell, I know people with needs like ADHD (a single diagnosis, not a complex health case) that cannot take a generic version.

Sure, this is a valid point. But this is not true for the majority of Medicare patients and, importantly, not why this is the case. This is happening because of existing deals and non-competitive drug purchasing.

Yeah no.

Generics -are- equivalent and regulated to be as such. [1] If you are hearing anything different it's just BS.

[1] https://www.fda.gov/drugs/questions-answers/generic-drugs-qu...

They aren't perfectly equivalent, but see my sibling comment.

Yes but no. Generics are not 1-1 substitutes because the FDA allows some (a lot) of wiggle room when it comes to bioequivalence.

A really good example where this fails miserably is Adderall for ADHD. The generics are absolutely miserable. And if you actually find a generic you tolerate you can never switch pharmacies because they’ll be different.

I’m no pharmacological expert but when I asked my pharmacist they explained it to me they said it was because Adderall is a mix of two drugs and it’s expensive to refine them into a balanced ratio but the FDA doesn’t care so generics don’t bother.

The rules aren't strict enough IMO but the observed variation is very low in practice. Australia allows very similar amounts of wriggle room in theory [1].

Most people I know in Australia with ADHD are treated with generics (very common among my friend group for some reason) and none that I am aware of have noticed any substantial differences between generics and brand name equivalents but I couldn't quickly find any studies that have investigated this.

I wonder if that is due to variation in balance of the included amphetamines (as most of these are multiple active ingredients) though as I doubt that the inactive ingredients would play a significant part.

[1] https://www.nps.org.au/assets/fc20fd821a02cf80-8d2289edb5e3-...

ADHD medication is an excellent example illustrating the potential "wiggle room" differences between generics and brand drugs. The composition is similar enough to meet FDA generic drug standards, but the rate at which the generic drug mechanisms distribute the drug differs and potentially decreases treatment efficacy for many patients.

Though, I do wonder if Vyvanse becoming a generic brand will help solve this dilemma, because the release mechanism is tied closer to the individuals metabolism via hydrolysis of an amino acid rather than relying on release rates set by minor manufacturing differences.

I believe it's therapeutic equivalence that the FDA is lax on, not bioequivalence. Bioequivalence is just "does it deliver the same amount of the active ingredient," theraputic equivalence is "does it deliver the active ingredient in the same manner." The active ingredient is the same, the inactive ones are where the difference lies. Usually, they're similar enough that it doesn't really matter, but some drugs really do benefit from buying the name brand.

A good example is with methylphenidate generics - you get the same amount of methylphenidate, but the name-brand extended release is far more effective than the generic extended release because it spreads the same amount of active ingredient over a longer period (the delivery mechanism created by the inactive ingredients in some generics is subpar).

Occasionally, you'll get non-bioequivalent generics that slip through FDA approval, which happened to some methylphenidate generics [0][1]. I remember getting switched to the name brand when this came out, as the supplier for all the pharmacies near me used a non-bioequivalent manufacturer. (Authorized generics don't have this problem since it's literally the name brand with generic labels slapped onto it, but the one the nearby pharmacies could get through their suppliers was not the authorized generic.)

[0]: https://www.fda.gov/drugs/drug-safety-and-availability/quest...

[1]: https://www.reddit.com/r/ADHD/comments/3af86d/fda_rules_2_fo...

Coke and Pepsi and RC Cola are equivalent but they are not the same. People can react differently to equivalent medication.

Wait what? This analysis is very much a broken window fallacy (fallacy of the seen vs the unseen); there are also very likely individuals "who can only take the generic version" because maybe the dosing schedules/bioavailability are slightly tweaked by the fillers or delivery additive, etc.

Generics are literally identical to the original drug.

Anecodtally, my wife had significantly different experiences with two different manufacturers of a generic prescription pain management medication that came in patch form. The medication might've been the same, but the amount that made it into her system seemed to vary enormously based on which company’s patches she received. Same dosage, same delivery method.

There’s more than just the raw chemical in play in a lot of meds.

Bioequivalent as judged by the FDA does not at all mean identical.

ETA: The fact that generics are not “literally identical” is probably the most important scientific, policy, and commercial consideration in that industry. FDA has to determine whether the benefits of lower costs justify the potentially lower efficacy, and set bounds for how different a generic can be and still count as “bioequivalent.”

There's certainly nobody that can't take a generic medication, barring unusual ingredient allergies. What is actually happening is that people "dialed in" the dose they need on a different formulation of a drug, so they'd need to go through the process of figuring out the correct individualized dose for them if they switch to a different version. It would probably have made more sense for them to have started with a generic version so they don't have to go through this process more than once.

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