Prescription drugs in the US, bought under Medicaid are far cheaper than those bought under Medicare. Federal investigators said in a new report on Monday that this is partly because Medicaid discounts are fixed under law, whereas Medicare prices are decided by private insurers and drug companies.
Published by the inspector general of the Department of Human and Health Services (HHS), the report could be used by lawmakers trying to cut drug prices as the Congress looks for ways to rein in the cost of Medicare under the new deficit-reduction law.
Under the existing law, the Congressional Budget Office estimates that the cost of Medicare's outpatient drug benefit will increase from $68 billion this year to $175 billion in 2021, an average of nearly 10 per cent a year.
Medicaid and Medicare receive discounts in the form of rebates, which are paid by drug manufacturers when their products are dispensed to people enrolled in the programs.
The inspector general, Mr D.R. Levison, found that rebates reduced spending on 100 widely-used brand name drugs by 19 per cent in Medicare and by 45 per cent in Medicaid. After taking account of the rebates, he said, Medicaid paid significantly less than Medicare for the same drugs.
Federal law specifies how the discount is calculated under Medicaid, the program for low-income people. The minimum rebate for a brand-name drug was increased last year to 23 per cent of the average price that manufacturers receive for sales of the product to retail pharmacies.