Comparison of Spending on Common Generic Drugs by Medicare vs Costco Members | Clinical Pharmacy and Pharmacology | JAMA Internal Medicine | JAMA Network
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Table 1.  Total Spending Under Medicare Insurance and “Counterfactual” Spending Under Costco Member Price for 184 Most Common Generic Productsa
Total Spending Under Medicare Insurance and “Counterfactual” Spending Under Costco Member Price for 184 Most Common Generic Productsa
Table 2.  Share of 30-Day and 90-Day Prescriptions Costing Less Under the Costco Member Price Than Various Benchmarks for 184 Most Common Generic Productsa
Share of 30-Day and 90-Day Prescriptions Costing Less Under the Costco Member Price Than Various Benchmarks for 184 Most Common Generic Productsa
1.
Sood  N, Shih  T, Van Nuys  K, Goldman  DP. The flow of money through the pharmaceutical distribution system. Leonard D. Schaeffer Center for Health Policy & Economics. June 6, 2017. Accessed June 2, 2021. https://healthpolicy.usc.edu/research/flow-of-money-through-the-pharmaceutical-distribution-system/
2.
Yost  D. Ohio’s Medicaid Managed Care Pharmacy Services Auditor of State Report. Ohio Pharmacists Association. August 16, 2018. Accessed June 2, 2021. https://audits.ohioauditor.gov/Reports/AuditReports/2018/Medicaid_Pharmacy_Services_2018_Franklin.pdf
3.
Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. 2019 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. Centers for Medicare & Medicaid Services. April 22, 2019. Accessed June 2, 2021. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2019.pdf
4.
Cubanski  J, Damico  A, Neuman  T. Medicare Part D in 2018: The Latest on Enrollment, Premiums, and Cost Sharing. Kaiser Family Foundation. May 17, 2018. Accessed June 2, 2021. https://www.kff.org/medicare/issue-brief/medicare-part-d-in-2018-the-latest-on-enrollment-premiums-and-cost-sharing/
5.
Introduction to the Generic Drug Supply Chain and Key Considerations for Policymakers. Association for Accessible Medicines. October 13, 2017. Accessed June 2, 2021. https://accessiblemeds.org/sites/default/files/2017-10/AAM-Generic-Brand-Drug-Supply-Chain-Brief.pdf
6.
2019 Annual Report: Costco Wholesale. December 10, 2019. Accessed June 2, 2021. https://investor.costco.com/static-files/05c62fe6-6c09-4e16-8d8b-5e456e5a0f7e
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    2 Comments for this article
    Cost of Common Generic Drugs for Costco Members and Non-Members
    Michelle Cochran, MD | Vanderbilt University Medical Center, Dept of Psychiatry
    Non-Costco members are allowed to use the pharmacy without joining.
    CONFLICT OF INTEREST: None Reported
    Reply to Dr. Cochran
    Erin Trish, Ph.D. | USC Schaeffer Center for Health Policy and Economics

    We appreciate Dr. Cochran's interest in our article.

    People who are not Costco members can purchase prescription drugs from Costco, but prices differ for members and non-members. In our study, we were unable to estimate the magnitude of this difference for the drugs in our sample, given the information that was available to us.

    CONFLICT OF INTEREST: These are described in the COI statement for the research letter
    Research Letter
    July 6, 2021

    Comparison of Spending on Common Generic Drugs by Medicare vs Costco Members

    Author Affiliations
    • 1Leonard D. Schaeffer Center for Health Policy and Economics, University of Southern California, Los Angeles
    • 2Department of Pharmaceutical and Health Economics, School of Pharmacy, University of Southern California, Los Angeles
    • 3Department of Health Policy and Management, Price School of Public Policy, University of Southern California, Los Angeles
    JAMA Intern Med. 2021;181(10):1414-1416. doi:10.1001/jamainternmed.2021.3366

    Efforts to control drug prices have highlighted the role of the pharmaceutical supply chain. Rather than driving efficiencies, this complex web of highly concentrated intermediaries with proprietary contracts may instead raise prices.1

    Much attention has focused on brand name drugs, although recent reports show that intermediaries can capture significant profits in the generic market as well.2 With 88% of Medicare Part D prescriptions dispensed for generic medications in 2018,3 excess profits retained by intermediaries in the generic supply chain could be substantial. This analysis compared the amount Medicare pays for common generic prescriptions in Part D with prices available to patients without insurance at Costco.

    Methods

    This cross-sectional study identified the 200 most common generic products prescribed in 2017 Medicare Part D claims, by drug name, strength, and dosage form and matched them to their member prices, including all fees and taxes, at Costco pharmacies nationwide. A membership warehouse chain with 80 million US members, Costco has more than 500 US stores and a mail-order business, making these prices available to virtually any US resident with a prescription, without insurance.

    Using the “days supplied” variable in Medicare claims, we eliminated 16 products that were not commonly prescribed in 30-day or 90-day quantities, resulting in a final sample of 184 products. The University of Southern California Institutional Review Board determined that the study met the criteria for coded private information or biological specimens and thus was exempt from informed consent requirements.

    Using Medicare claims data, we calculated the total spending, including beneficiary out-of-pocket (OOP) payments and payments from all other sources, for all 30-day and 90-day claims for these products in 2017 and 2018. We labeled the difference between the “counterfactual” cost of these prescriptions if purchased at the member price available at the time and the total amount spent as “overspending” under Medicare. Data analysis was performed using SAS Enterprise Guide software, version 7.15 (SAS Institute Inc).

    Results

    Across more than 1.4 billion Medicare Part D claims for 184 products, the mean (SD) total prices were $12.02 ($18.47) and $24.32 ($41.07) for 30-day and 90-day prescription fills, respectively. Medicare overspent by 13.2% in 2017 and 20.6% in 2018 compared with Costco member prices for these prescriptions (Table 1). Total overspending increased from $1.7 billion in 2017 to $2.6 billion in 2018.

    In 2018, overspending was much lower on 30-day prescription fills (7.3%) than 90-day fills (29.4%) (Table 1), which accounted for 69.7% of the total days supplied for these 184 products. Medicare overspent relative to the Costco member price on 43.2% of all 30-day and 90-day prescription fills for these products, with overspending more common on 90-day fills (52.9%) (Table 2). The member price fell below the patient’s OOP payment on 11.0% of prescription fills, and below $20 on 82.4% of fills. In all, 98.8% of these prescription fills had a member price below $50 (Table 2). Results for 2017 were similar.

    Discussion

    Among 2018 stand-alone Part D plans, median cost sharing was $1 for preferred generic medications and $6 for nonpreferred generic medications.4 Furthermore, approximately 30% of beneficiaries received low-income subsidies and paid little to no cost sharing.4 These low OOP costs mask the fact that Medicare overpaid on 43.2% of prescriptions for the most common generic medicines that year. In comparison, Costco’s streamlined distribution system could have saved $2.6 billion on these 184 drugs. With generic medications accounting for 22% of Part D spending,3 eliminating generic overspending could significantly reduce beneficiary premiums and federal spending.

    This analysis was limited to generic drugs, because generic manufacturers do not pay (unobserved) rebates to pharmacy benefit managers or plans.5 Brand name drugs may exhibit different patterns. We did not incorporate Costco’s annual membership fee into member prices. However, membership fees account for only 2.2% of Costco’s annual revenues,6 so it is unlikely that such fees are materially subsidizing product prices.

    While Medicare coverage of generic drugs likely improves patient adherence and reduces other health care utilization, our analysis highlighted the inefficiencies that the current system introduces through its complex and opaque system of intermediaries, which Costco largely bypasses.

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    Article Information

    Accepted for Publication: May 12, 2021.

    Published Online: July 6, 2021. doi:10.1001/jamainternmed.2021.3366

    Corresponding Author: Erin Trish, PhD, USC Schaeffer Center for Health Policy and Economics, 635 Downey Way, VPD 412D, Los Angeles, CA 90089-3333 (etrish@healthpolicy.usc.edu).

    Author Contributions: Ms Gascue had full access to all of the data in the study and takes responsibility for the integrity of the data and the accuracy of the data analysis.

    Concept and design: Trish, Gascue, Van Nuys, Joyce.

    Acquisition, analysis, or interpretation of data: All authors.

    Drafting of the manuscript: Joyce.

    Critical revision of the manuscript for important intellectual content: All authors.

    Statistical analysis: Trish, Gascue, Ribero, Joyce.

    Obtained funding: Van Nuys, Joyce.

    Administrative, technical, or material support: Joyce.

    Supervision: Trish, Van Nuys, Joyce.

    Conflict of Interest Disclosures: The Leonard D. Schaeffer Center for Health Policy & Economics is supported by a wide variety of public and private entities and donors, including health insurers and pharmaceutical manufacturers. More information on the Center's funding sources is available at https://healthpolicy.usc.edu/wp-content/uploads/2021/03/Schaeffer-Center-2020-Annual-Report.pdf. Dr Trish reported receiving grant support from Arnold Ventures and the Commonwealth Fund and personal fees from the Blue Cross Blue Shield Association, Cedars Sinai Health System, Cornerstone Research, Multiplan, Premera, and Varian Medical Systems, outside the submitted work.

    Disclaimer: The content of this article is solely the responsibility of the authors and does not necessarily represent the official views of the Leonard D. Schaeffer Center for Health Policy & Economics.

    References
    1.
    Sood  N, Shih  T, Van Nuys  K, Goldman  DP. The flow of money through the pharmaceutical distribution system. Leonard D. Schaeffer Center for Health Policy & Economics. June 6, 2017. Accessed June 2, 2021. https://healthpolicy.usc.edu/research/flow-of-money-through-the-pharmaceutical-distribution-system/
    2.
    Yost  D. Ohio’s Medicaid Managed Care Pharmacy Services Auditor of State Report. Ohio Pharmacists Association. August 16, 2018. Accessed June 2, 2021. https://audits.ohioauditor.gov/Reports/AuditReports/2018/Medicaid_Pharmacy_Services_2018_Franklin.pdf
    3.
    Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. 2019 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. Centers for Medicare & Medicaid Services. April 22, 2019. Accessed June 2, 2021. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2019.pdf
    4.
    Cubanski  J, Damico  A, Neuman  T. Medicare Part D in 2018: The Latest on Enrollment, Premiums, and Cost Sharing. Kaiser Family Foundation. May 17, 2018. Accessed June 2, 2021. https://www.kff.org/medicare/issue-brief/medicare-part-d-in-2018-the-latest-on-enrollment-premiums-and-cost-sharing/
    5.
    Introduction to the Generic Drug Supply Chain and Key Considerations for Policymakers. Association for Accessible Medicines. October 13, 2017. Accessed June 2, 2021. https://accessiblemeds.org/sites/default/files/2017-10/AAM-Generic-Brand-Drug-Supply-Chain-Brief.pdf
    6.
    2019 Annual Report: Costco Wholesale. December 10, 2019. Accessed June 2, 2021. https://investor.costco.com/static-files/05c62fe6-6c09-4e16-8d8b-5e456e5a0f7e
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