Medicare Could Save Billions by Copying Costco

Medicare Could Save Billions by Copying Costco

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Plus, 'Tax Evasion, Plain and Simple’
Wednesday, July 7, 2021

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.

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