What if Medicare’s drug benefit was more like the VA’s? | The Incidental Economist

What if Medicare’s drug benefit was more like the VA’s? | The Incidental Economist

Medicare’s inability to negotiate program-wide prices and tighten plan formularies is in stark contrast to the VA, which negotiates directly with drug manufacturers and is not bound by the same formulary rules as Part D plans. That’s why the VA has been able to implement a national formulary more restrictive than those of Medicare plans and obtains lower drug prices. If Medicare plans could implement VA-like formularies and obtain commensurately lower prices, our paper shows that enough could be saved to compensate beneficiaries for the loss of choice, with savings to spare.

To repeat, the key findings are:

• The VA pays 40% less than Medicare plans for prescription drugs.

• Medicare plans cover about 85% of the most popular 200 drugs on average (ranging from a low of 68% to a high of 93%).

• The VA’s national formulary includes 59% of the most popular 200 drugs.

• If Medicare obtained the same drug prices as the VA, it would save $510 per beneficiary per year or a total of $14 billion per year (2009 prices).

• If Medicare plans tightened formularies to the level of generosity available from the VA (59% of top 200 drugs covered), beneficiaries would lose $405 of value per year associated with the loss of choice of drugs. (The right way to interpret this is that the average beneficiary would be precisely indifferent between the loss of drug choice and $405 dollars in cash.)

• Because the savings ($510 per beneficiary) exceeds the loss of value to beneficiaries ($405), they could, in principle, be made whole with $105 left over (= $510 – $405).

Sphere: Related Content