Pentagon spends more per patient than Medicare and Medicaid

Medicare, Medicaid unit-costs lower

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The Department of Defense spends more per unit for prescription drugs than Medicare or Medicaid, according to a new report from the Government Accountability Office.

A GAO report released Monday detailed the gap in prices paid between the three largest federal buyers of prescription drugs. The Pentagon spends about 20 percent more, on average, for prescriptions than Medicare Part D (the part of Medicare that actually purchases drugs) and about 60 percent more than Medicaid.

“The prices were higher overall for the [Defense Department], with the exception of brand-name drugs,” said John Dicken, GAO’s director of health care.

The Pentagon spent $7.48 billion on prescription drugs in fiscal year 2011, almost 9 percent of all federal spending on prescriptions that year, according to the report. Total spending from all three departments was $71.2 billion, about 85 percent of all federal spending on drugs.

About 9.7 million Americans received prescriptions via the Defense Department in 2011.

This is the second report in two years detailing the Defense Department’s overpayment for prescriptions. In 2013, the GAO released a report that compared the costs between the Department of Defense and the Department of Veterans Affairs, for the first quarter of fiscal year 2012.

“The [Defense Department] also purchases drugs directly,” Mr. Dicken said of that survey. “In comparison with the VA, the prices were also higher.”

Monday’s report was requested by Sen. Tom Coburn, Oklahoma Republican. Prescription prices, which are rarely seen in their original form by consumers with health insurance or government assistance, are affected by myriad factors.

“Prices for prescription drugs purchased in retail pharmacies generally include markups by one or more intermediaries (such as wholesalers and distributors) as well as storage, overhead and dispensing costs,” according to the report.

Mr. Coburn, who is the ranking member of the Homeland Security and Governmental Affairs Committee, did not respond to request for comment on the GAO findings.

The Defense Department, Medicaid and Medicare Part D all pay for prescriptions by reimbursing pharmacies after beneficiaries have already filled prescriptions. While the Defense Department is the biggest average spender per unit of prescription drugs in both GAO studies, this is likely because of price adjustments, Dicken said.

Each organization will get a federally mandated adjusted price to pay after a beneficiary has already filled a prescription, and adjustments that auditors found ranged from a 15 percent reduction in the gross price of a drug — the average gross-price adjustment Medicare enjoyed — to 53 percent, the average gross-price adjustment Medicaid received. Medicaid consistently paid the least for prescriptions.

However, many of the prescriptions the Pentagon buys are not covered by federal price adjustments at all, which contributes to the overall price gap that the report found.

But the price adjustments might be only one in a mosaic of factors affecting prescription prices. “We weren’t able to get a systematic understanding of what all the causes were,” Mr. Dicken said.

“Each of the three programs not only have very different populations, but also very different statutory regulations,” he added.

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