Generic drugs make up 90% of all prescriptions filled in the US, offering a more affordable alternative to brand-name medications. However, research suggests that pharmacy benefit managers (PBMs) often reimburse pharmacies at rates far higher than the actual cost of these drugs. For example, the generic cancer drug imatinib costs $126 for a 30-day supply, yet PBMs reimbursed pharmacies an average of $3780 — nearly 30 times its acquisition cost. This raises an important question: Are Medicare Part D beneficiaries paying more out-of-pocket because of these inflated reimbursements?
Study Overview
A study conducted by the University of California, San Diego, analyzed 2021 Medicare Part D claims for the top 50 generic drugs by spending. Here’s how the study was structured:
- Data Collection: Researchers gathered claims data from Medicare Part D beneficiaries enrolled in stand-alone prescription drug plans (PDPs) offered by the six largest Part D sponsors, which cover 90% of enrollees.
- Eligibility Criteria: Only claims without low-income subsidies and those filled during the initial coverage or coverage gap phase were included, where beneficiaries are responsible for 25% of drug costs.
- Cost Analysis: For each claim, total reimbursement and patient liability were calculated. Patient liability included out-of-pocket payments and contributions from third-party payers, like state assistance programs or charities.
- Comparison to Acquisition Costs: Drug costs were compared against the National Average Drug Acquisition Cost, with results standardized to a 30-day supply. The study highlighted drugs with extreme reimbursement rates — those where at least one Part D sponsor paid over 10 times the acquisition cost and exceeded it by at least $50 per 30-day supply.
Key Findings
Top 50 Generic Drugs:
- Elixir Insurance (owned by Rite Aid) reimbursed pharmacies at an average of $22.46 above acquisition costs, with patient liability often exceeding the actual drug cost.
- Humana was the only sponsor where average patient liability did not surpass drug acquisition costs.
Drugs with Extreme Markups:
- Thirteen drugs with extreme reimbursement rates accounted for 23.8% of total spending but made up 60.8% of patient cost-sharing beyond acquisition costs.
- Rite Aid’s plan reimbursed nine drugs with markups exceeding $100, while CVS Health’s plans also showed high overpayment rates.
- Medications like abiraterone, cinacalcet, imatinib, and sevelamer had the steepest markups. For instance, CVS Health beneficiaries paid $971.60 more than the acquisition cost for a 30-day supply of imatinib.
Implications and Next Steps
This study underscores how inflated pharmacy reimbursements lead to higher out-of-pocket costs for Medicare beneficiaries. In some cases, patients paid hundreds — even thousands — of dollars above the actual cost of their medications. Given that dispensing costs average around $12 per prescription, these markups seem unjustifiable.
While the study’s findings are limited to one year of data and lack information on dispensing fees or post-transaction clawbacks (fees eliminated in 2024), they highlight the need for legislative reforms. Investigating and addressing these reimbursement practices is crucial to ensure affordable access to generic drugs through Medicare Part D — without resorting to extreme measures like removing generics from insurance coverage altogether.
Reforms in this area could help protect patients from excessive costs while preserving access to essential medications.