Insurance companies manipulating generic prescription drug prices in Medicare: Study

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Medicare Part D patients are overpaying for generic drugs with “alarming” results as health insurers artificially inflate prices.

A new study found private health insurers that sponsor Medicare Part D prescription drug plans use pharmacy benefit managers (PBMs) that inflate drug costs by overpaying pharmacies for the medicines. Those reimbursement practices in turn affect patients by using those higher prices to calculate copays and deductibles, according to the research letter published in JAMA.

“By inflating the amount paid to pharmacies, PBMs make patients pay more because patient cost sharing is based on point-of-sale reimbursement,” the study said.

“The results are alarming,” corresponding author Inmaculada Hernandez, PharmD, PhD, said in a news release. “We are talking about markups of 6,000% or 7,000% in some cases.”

Hernandez is a professor at Skaggs School of Pharmacy and Pharmaceutical Sciences at University of California San Diego. West Health and the University of Washington collaborated on the study, which researchers said was the first of its kind to review Medicare Part D pricing practices.

The study involved data from the U.S. Centers for Medicare & Medicaid Services (CMS) for the 50 generic drugs that CMS spent the most on in 2021.

Pharmacies purchase drugs wholesale to fill prescriptions. Insurers then reimburse the pharmacies, but their contracts include provisions for “clawbacks,” or taking money back from pharmacies in certain circumstances.

The researchers said the clawbacks “can be financially devastating to a pharmacy.”

“It doesn’t make sense that insurers would overpay for drugs, then use clawbacks to retroactively adjust payments after the patient has paid their co-payment,” coauthor Sean D. Sullivan, PhD, said in the news release. Sullivan is professor of pharmacy at the University of Washington. “This practice is opaque and ultimately harms patients and pharmacies.”

Patients end up paying more because copays may be calculated using the greater drug prices.

“For instance, if a patient pays 30% as a copayment for a drug, that 30% would be applied to the inflated price, which could mean higher out-of-pocket costs for seniors,” Hernandez said.

The researchers said one of the most dramatic examples was a cancer drug that cost $4.20 per tablet to the pharmacy. Insurers were reimbursing the pharmacies an average of $126 per pill – an average markup of 3,000%, or $3,600 for a 30-day supply.

“Seniors are clearly paying more for their medications as a result of these markups,” Hernandez said in the news release. “More research is needed to confirm the scope of these practices, but the evidence is concerning.”

The study appeared to confirm anecdotal evidence publicized earlier this year by nonprofit drug maker CivicaRx, which states Medicare Part D sponsors potentially were over-reimbursing pharmacies for abiraterone, a cancer drug. The researchers noted the U.S. Senate is considering a bill that would target the reimbursement practices.