Ten Myths about the Market for Prescription Drugs
Myth No. 6: Seniors Are Overcharged for Drugs
Supporters of Rep. Allen's Prescription Drug Fairness for Seniors Act have produced a study to show that drug companies charge seniors more than they charge anyone else, but the findings are based on inaccurate pricing information.18 The study claims that seniors in Washington, D.C., pay nearly 100 percent more for drugs than do managed care companies. The claim is based on the assumption that the prices HMOs pay for drugs are equivalent to prices in what is known as the Federal Supply Schedule (FSS). However, very few government agencies, primarily the Veterans Administration, get the FSS deep discount on prescription drugs. HMOs do not get FSS prices. Neither does the government, except for this special case. According to the General Accounting Office (GAO), "...many FSS prices are more than 50 percent below nonfederal average manufacturer prices. But companies have been willing to give federal purchasers such low prices because they consider the FSS to be a special, limited category of pricing that affects no more than about 2 to 3 percent of total dollars in domestic pharmaceutical sales."19
Another GAO report concluded that the typical "best price" paid by HMOs and hospitals was discounted 14 to 15 percent.20 A report by the Congressional Budget Office (CBO) put the discount at 19 percent.21 Sixty-five percent of Medicare beneficiaries have some form of prescription drug benefit plan, and seniors can buy drugs at a discount through AARP, private buying clubs, other organizations and discount pharmacies.
"Senior citizens could have comprehensive drug coverage with virtually no increase in personal costs if private health plans were allowed to administer the benefits."
The federal government itself creates problems for seniors. A new study by Milliman & Robertson, the nation's leading actuarial consulting firm on health benefits, concludes that senior citizens could have comprehensive coverage for prescription drugs in addition to other Medicare benefits with virtually no increase in personal costs if private health plans were allowed to administer the benefits.22 The study finds that private health plans have the ability to eliminate much of the waste and inefficiency in Medicare and apply the savings to the cost of prescription drugs not currently covered.