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Costco May Save You 50% on These Items, Says Study

Health plans and taxpayers are often overpaying for medications, researchers say.
FACT CHECKED BY Alek Korab

Even if you're not a Costco customer, you've likely heard about the cult following gained by their free samples, pizza, and birthday cakes. But the warehouse club—and other chains like it—might become known as destination shopping of a different kind: For inexpensive generic prescription drugs, which are often cheaper than Medicare.

Researchers at the USC School of Pharmacy compared what Medicare Part D plans paid for the most common generic prescriptions, including patients' out-of-pocket payments, to the cash prices paid by Costco members for the same prescriptions in 2017 and 2018. They found that Costco prices were cheaper 50% of the time.

The reason? Intermediaries who negotiate drug prices for Medicare aren't passing the savings on to people who need those drugs, the researchers say.

"Our analysis shows that in systems like Costco's, where incentives are set up to deliver value directly to the consumer at the pharmacy counter, that's what happens," said Erin Trish, associate director of the USC Schaeffer Center for Health Policy and Economics and an assistant professor of pharmaceutical and health economics at the USC School of Pharmacy. "It's time to fix those incentives in the Medicare Part D system to put the patient first."

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Medicare Plans, Taxpayers Overpaying For Generics

The study found that among 1.4 billion Medicare Part D claims for 184 drugs, Medicare plans overspent by 13% in 2017 and almost 21% in 2018 compared to Costco member prices. And Medicare plans paid more than Costco members on almost 53% of 90-day prescription fills analyzed in 2018. On 30- and 90-day fills, Medicare plans overpaid 43% of the time.

"Efforts to reduce prescription drug prices tend to focus on brand-name medicines, but the opaque pharmaceutical supply system can also cause health plans and taxpayers to overpay for generics," said Geoffrey Joyce, director of health policy at the USC Schaeffer Center and chair of the Department of Pharmaceutical and Health Economics at the USC School of Pharmacy.

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How Does This Happen?

Medicare Part D is administered through private plans that use intermediaries, known as pharmacy benefit managers (PBMs) to negotiate prescription drug prices on behalf of Medicare. But the PBMs don't seem to be passing those negotiated savings along to plans and patients.

"There is lots of price competition among manufacturers for these drugs, but that competition isn't benefiting the consumer," said Karen Van Nuys, executive director of the USC Schaeffer Center's Value of Life Sciences Innovation Program and assistant professor at the USC Price School of Public Policy. "These are not small-market drugs where there might be only one supplier who can name their price."

Lawmakers should take a closer look at the negotiators, the researchers say in this month's JAMA Internal Medicine. And to get through life at your healthiest, don't miss these 13 Everyday Habits That Are Secretly Killing You.

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