Study: Medicare could have saved $3.6B buying generics from Mark Cuban Cost Plus Drug

By purchasing 89 specific generics at MCCPDC prices, Medicare could have saved up to $3.6 billion in 2020, or 37% of $9.6 billion spending, according to a new analysis.

Sandra Levy

6/23/2022

Medicare could have saved up to $3.6 billion in 2020 on generic drugs from Mark Cuban Cost Plus Drug, according to a new study published in the Annals of Internal Medicine, co-authored by Hussain Lalani, Benjamin Rome and Aaron Kesselheim.

In January 2022, Mark Cuban Cost Plus Drugs, also known as MCCPDC, launched an online pharmacy selling over 100 generic medicines directly to consumers at low prices without health insurance.

In a new analysis, the authors estimated that by purchasing 89 of these generics at MCCPDC prices, Medicare could have saved up to $3.6 billion in 2020 or 37% of $9.6 billion spending. For example, Medicare paid $1.77 per pill of esomeprazole, the generic for Nexium, to treat acid reflux heartburn. The same drug is available for $.19 per pill from MCCPDC, and purchasing the drug at this price could have saved $293 million on this drug alone, according to the study.

“Medicare is overpaying for some generic prescription drugs and could save billions of dollars! Distributing an inexpensive generic drug can cost more than producing the drug itself! Our study highlights inefficiencies in the current generic pharmaceutical supply chain,” Lalani told Drug Store News.

“Although generic medicines are typically much less expensive than brand-name drugs, our findings suggest that Medicare is overpaying for many of these generic medicines,” the authors wrote. “This may be partly due to inefficiencies in the generic pharmaceutical supply chain. Direct-to-consumer pharmacies like MCCPDC shine light on these inefficiencies, although savings are only available for some patients on select drugs.”

The authors contend that broader policy reforms could increase the affordability of essential generic medicines for all Americans, including improving price transparency, assuring adequate competition for high-cost generic drugs, preventing annual price increases, and limiting pharmacy and distribution costs.

To estimate the potential savings if Medicare Part D plans paid MCCPDC prices, for 109 generic medications sold by the online pharmacy on Feb. 8, 2022, the authors identified the price, including the pharmacy dispensing fee and shipping fee, for the minimum (e.g., 30-count) and maximum (e.g., 90-count) quantities available.

"We identified 2020 Medicare Part D spending for 89 (82%) drugs, excluding 20 drugs with multiple dosage forms (e.g., cream and ointment) because average weighted Medicare unit prices by ingredient were not comparable to MCCPDC unit prices. When multiple dosage strengths were available from MCCPDC (68 of 89 drugs), we conservatively selected the most expensive option," the authors noted.

“We estimated potential Medicare savings as the difference in unit price between MCCPDC and Medicare, multiplied by the number of units dispensed to Medicare enrollees in 2020,” the authors stated. “Because ingredient costs changed between 2020 and February 2022, we adjusted Medicare prices and spending by the percentage change in each drug's National Average Drug Acquisition Cost from July 1, 2020 to Feb. 9, 2022. As a result, all prices are reported in 2022 U.S. dollars, but annual use was from 2020 (the most recent Medicare data available).”

Among the study’s findings:

Estimated annual Medicare spending on these 89 drugs was $9.6 billion;
If Medicare purchased generic drugs in the maximum quantity supplied by MCCPDC, it could have saved $3.6 billion (37%) on 77 of 89 (87%) generic drugs;
Of the $6 billion in total estimated Medicare spending, MCCPDC prices did not offer savings for 12 drugs ($1.5 billion);
Of the $4.5 billion in drug spending where savings were available, costs were $1.9 billion (43%) for ingredients and manufacturing, $1.4 billion (30%) for shipping, $820 million (18%) for pharmacy fees and $402 million (9%) for the 15% margin; and
The drug with the highest potential savings was esomeprazole ($293 million).

If Medicare had purchased drugs in the minimum quantity available from MCCPDC, it could have saved $1.7 billion (18%) on 42 of 89 (47%) drugs. In this scenario, shipping ($872 million, 39%) and pharmacy fees ($523 million, 24%) made up a higher percentage of total spending, according to the researchers.

In this cross-sectional study, Medicare could have conservatively saved up to $3.6 billion in 2020 by purchasing 77 generic drugs at MCCPDC prices. “Our findings suggest that Medicare is overpaying for many generic drugs, which is consistent with findings that Medicare overspent on 43% of generic prescriptions in 2018 relative to Costco member prices. Our study was limited to the generic drugs sold by MCCPDC, which represent 25% of the approximately $38 billion in Medicare Part D generic drug spending in 2020."

The authors noted that the number of generic drugs sold by MCCPDC has increased since their analysis and that they did not account for out-of-pocket costs for Medicare enrollees. There could have been additional savings from the small number of brand-name drugs dispensed despite the availability of interchangeable generic drugs, the researchers said.

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