Medicare Could Save Billions by Copying Costco

By Yuval Rosenberg

Medicare Could Save Billions on Generic Drugs by Imitating
Costco: Report

Medicare could have saved billions of dollars on generic drugs
in recent years if it used a streamlined distribution system like
retail giant Costco, according to an analysis published Tuesday in
the journal JAMA Internal Medicine.

Researchers at the University of California’s Schaeffer Center
for Health Policy and Economics compared what the Medicare Part D
prescription drug program paid for 184 common generic drugs with
the prices available at Costco to patients without insurance. They
found that Medicare overspent by billions.

"Medicare overspent by 13.2% in 2017 and 20.6% in 2018 compared
with Costco member prices for these prescriptions," they wrote in
their
analysis. "Total overspending increased from $1.7
billion in 2017 to $2.6 billion in 2018."

Medicare patients filling their prescriptions didn’t cover that
entire tab themselves. Their average cost sharing in 2018 was $1
for preferred generic drugs and $6 for nonpreferred ones — and
about 30% of beneficiaries got low-income subsidies that left them
with little to no cost-sharing. But the USC researchers suggest
that those low out-of-pocket costs only hide the broader systemic
ones borne by Medicare beneficiaries and taxpayers in general.

"These low [out-of-pocket] costs mask the fact that Medicare
overpaid on 43.2% of prescriptions for the most common generic
medicines that year," they say in their report. "With generic
medications accounting for 22% of Part D spending, eliminating
generic overspending could significantly reduce beneficiary
premiums and federal spending."

The researchers say that Medicare’s "complex and opaque system
of intermediaries" introduces inefficiencies that "Costco largely
bypasses."

CNN’s Maggie Fox and Tami Luhby
explain:

"Medicare contracts with insurers to provide Part D coverage,
and insurers work with pharmacy benefit managers (PBMs) to run the
drug benefits. The PBMs are often owned by the insurers, which can
complicate incentives to provide the lowest price to Medicare and
taxpayers.
"Also, the Part D program hasn't kept up with the changes in
the industry that have reduced Medicare beneficiaries' drive to
shop for plans based on premiums. Many enrollees are now in private
Medicare Advantage plans, which include Part D benefits."

The bottom line: Erin Trish, associate director of the
University of Southern California’s and an author of the report,
told CNN said that Medicare needs to strengthen incentives for
insurers to get more value from the pharmacy benefit managers and
increase transparency across the supply chain.

"I think that the issue is not that the PBMs can't negotiate low
prices, but rather that they don't have a strong enough incentive
to pass those on to the consumer (in the way that Costco does),"
Trish told CNN. "More transparency and competition in the supply
chain would help, as would improvements to Part D to enhance
competition among plans."

Hospitals Regularly Charge Uninsured the Highest Prices:
Analysis

A Wall Street Journal analysis of hospital pricing data made
public this year confirms what you may have already suspected:
Hospitals routinely charge uninsured patients their highest prices,
often billing cash payers more than they charge insurance companies
for the very same service.

The Journal’s Melanie Evans, Anna Wilde Mathews and Tom McGinty

report:

"Hospitals typically charge different customers different
prices for the exact same service, with big discounts for some but
not others.
"Those rates—and wide pricing differences—were confidential
until Jan. 1, when a new federal rule required hospitals to make
prices public.
"The newly public prices allow for the first time a comparison
of what deep-pocketed insurers pay hospitals versus rates that
hospitals set for patients who pay cash. Time and time again, the
Journal’s analysis revealed, cash payers are charged among the
highest prices.
"Patients typically pay these cash prices either because they
are uninsured or because some services aren’t covered by their
health plans. Hospitals generally offer financial aid, but policies
vary widely and can be poorly promoted, leaving many uninsured, who
are often also low-income, to struggle with unmanageable
bills."


Read the full report at The Wall Street
Journal.

Op-Ed of the Day: ‘Tax Evasion, Plain and Simple’

The Biden administration won a victory last week when 130
countries agreed in principle to establish a global minimum tax on
corporate profits, but according to liberal economist Gabriel
Zucman,
writing in The New York Times Wednesday, the
potential 15% levy is "too little, too late."

Along with graphics editor Gus Wezerek, Zucman lays out the
argument that multinational corporations have been the main winners
of the global "race to the bottom" in tax rates, with disastrous
results for middle-class taxpayers.

Over the last few decades, a handful of countries such as
Ireland and Bermuda have become legal tax havens, helping U.S.
business owners slash their tax bills while amassing unprecedented
wealth. To make up for lost tax revenues at home, Congress has
raised taxes on labor (see chart below).

Zucman cites Facebook and Nike as examples of companies
that have "resorted to devious schemes" to shift profits and slash
their tax bills. In 2018, the social media giant recorded $15
billion in profit in Ireland, despite having a tiny workforce
there. And for years, Nike has placed ownership of its famous logo
in a Bermuda-based subsidiary. 

"This is tax evasion, plain and simple," Zucman writes.
"When a company logs billions of dollars in profit in a shell
company, it violates the spirit of the Internal Revenue Code’s
economic substance doctrine, which states that a transaction must
have a purpose other than to reduce tax liability."

In response to these maneuvers, Zucman calls for the
establishment of a 25% minimum corporate tax, higher than the 15%
proposed by the White House, which Zucman says would allow some
companies to pay a lower total tax rate than many American
workers.

"The time for incrementalism is long past," he writes.
"For decades, Congress has been playing catch-up as business owners
and a handful of tax havens have driven international tax policy.
The result has been a nation where working-class Americans are left
with underfunded public schools and hospitals as the wealthy board
rocketships to outer space."

While it certainly wouldn’t be easy to enact, Zucman
says the funds resulting from a minimum tax would go a long way.
The 25% corporate tax "would bring in about $200 billion in
additional revenue each year," he writes. "Over 10 years, that
money would be more than enough to pay for nationwide high-speed
internet, free community college and universal preschool for 3- and
4-year-olds."

Quote of the Day

"The Pentagon is really going to have to refocus its efforts.
We are not going to be able to deal with a rising China. Throwing
more money at the problem hasn’t worked. You have a budget that’s
higher in constant dollars than the peak of the Reagan buildup with
a million less active-duty personnel, 35 to 40 percent less
fighting units. And we don’t have a lot of time to do
this."

– Arnold Punaro, a retired Marine Corps
Reserve major general and former staff director of the Senate Armed
Services Committee, as quoted by Politico’s Morning Defense
newsletter, on the defense budget and the need for "transformative
reforms" to the Pentagon’s acquisition systems.

Send your feedback to yrosenberg@thefiscaltimes.com.
And please tell your friends they can
sign up here for their own copy of this
newsletter.

News

Views and Analysis