In 2011, federal spending on Medicare Part D totaled  approximately $55.2 billion, accounting for about 65.9 percent of total  federal drug expenditures. Medicaid Paid Lower Net Prices Than DOD and Medicare Part D, Largely Due to Differences in Post- Purchase Price Adjustments

Medicaid paid a lower average net unit price—that is, the price after  subtracting any beneficiary-paid amounts and post-purchase price  adjustments—than DOD and Medicare Part D across the entire sample of  78 prescription drugs and the subsets of brand-name and generic drugs. Specifically, Medicaid’s average net price for the entire sample was   $0.62 per unit, while Medicare Part D paid an estimated 32 percent more  ($0.82 per unit) and DOD paid 60 percent more ($0.99 per unit). When we examined the net prices that each program paid for the  individual drugs in the sample after subtracting all reported beneficiary- paid amounts and post-purchase price adjustments, we found that  Medicaid paid the lowest prices for 25 brand-name and 3 generic drugs,  while DOD paid the lowest net price for 5 brand-name and 22 generic  drugs, and Medicare Part D paid the lowest estimated net price for 3  brand-name and 20 generic drugs. Of these, a key factor for the entire  sample and for the brand-name subset was the amount of manufacturer  post-purchase price adjustments received. On average  across the entire sample, these price adjustments ranged from about 15  percent of the gross price for Medicare Part D to about 31 percent for  DOD, and nearly 53 percent for Medicaid. The gross unit prices paid to retail pharmacies by each program and the  magnitude of beneficiary-paid amounts also contributed to the differences  in net prices, although to a lesser degree than post-purchase price  adjustments. Beneficiary-paid amounts also affected the net prices paid by each  program; larger beneficiary payments contributed to lower net prices paid  by the agency. For  the subset of brand-name drugs in our sample, beneficiary-paid amounts  ranged from 6 percent of the gross price for DOD to 17 percent for  Medicare Part D, while for the subset of generic drugs these amounts  ranged from 14 percent of the gross price for DOD to 21 percent for  Medicare Part D.
Market dynamics—such as manufacturer responses to offset discounts,  the number of competitors for a given drug, and varying utilization of  specific drugs by different programs—can also affect the net prices paid  by these and other drug programs and thus the amount of savings the  programs might be able to achieve. Agency Comments

We provided a copy of the draft report to DOD and the Department of  Health and Human Services (HHS) for comment. DOD stated that it had  no comments. HHS provided a technical comment, which was  incorporated. Appendix I: Scope and Methodology

In this appendix we describe our data sources, the selection of the drug  sample, and calculations of gross and net unit prices paid by the  Department of Defense (DOD), Medicaid, and Medicare Part D for  prescription drugs dispensed to their beneficiaries at retail pharmacies. We calculated gross unit prices by first adding the  program-paid and beneficiary-paid amounts for each drug, then dividing  these expenditures by total utilization. We interviewed DOD and CMS officials and reviewed literature describing  factors that affect drug prices.
Why GAO Did This Study

In 2011, federal spending for prescription drugs by DOD, Medicaid, and Medicare Part D totaled $71.2 billion—representing about 85 percent of all federal prescription drug expenditures—for about 114.4 million beneficiaries. Each program reimbursed retail pharmacies for outpatient prescriptions filled at these pharmacies by their beneficiaries.
GAO was asked to compare prices paid for prescription drugs across federal programs. This report compares retail reimbursement prices paid by DOD, Medicaid, and Medicare Part D for a sample of prescription drugs and describes factors affecting these prices. Using agency data for the third quarter of 2010 (the most recent data available at the time of GAO's analysis), GAO selected a sample of 50 high-utilization and 50 high-expenditure drugs; after accounting for overlap between the two groups, the final sample contained 78 drugs. GAO calculated average gross unit prices paid to pharmacies by each program by adding total program-paid and beneficiary-paid amounts and dividing by total utilization for each drug, the entire sample, and the subsets of brand-name and generic drugs. GAO calculated net unit prices paid by each program by subtracting all agency-reported beneficiary-paid amounts, rebates, refunds, and other price concessions from the gross unit prices. GAO also interviewed DOD, Medicaid, and Medicare Part D officials and reviewed literature describing factors affecting drug prices.

What GAO Found

GAO found that Medicaid paid the lowest average net prices across a sample of 78 high-utilization and high-expenditure brand-name and generic drugs when compared to prices paid by the Department of Defense (DOD) and Medicare Part D. Specifically, Medicaid's average net price for the entire sample was $0.62 per unit, while Medicare Part D paid an estimated 32 percent more ($0.82 per unit) and DOD paid 60 percent more ($0.99 per unit). Similarly, Medicaid paid the lowest net price for the subset of brand-name drugs in the sample, while DOD paid 34 percent more and Medicare Part D paid an estimated 69 percent more. Medicaid also paid the lowest net price for the subset of generic drugs, while Medicare Part D paid 4 percent more and DOD paid 50 percent more.
GAO found that multiple factors affected the net prices paid by each program. Specifically, a key factor for the entire sample and the brand-name subset was the amount of any post-purchase price adjustments, which are the refunds, rebates, or price concessions received by each program from drug manufacturers after drugs have been dispensed to program beneficiaries. These price adjustments ranged from about 15 percent of the gross price for Medicare Part D to about 31 percent for DOD, and nearly 53 percent for Medicaid across the entire sample. The gross prices each program negotiated with pharmacies and the magnitude of beneficiary-paid amounts also contributed to differences in net prices paid by the three programs, but to a lesser degree.
GAO provided a copy of the draft report to DOD and the Department of Health and Human Services (HHS) for comment. DOD stated that it had no comments. HHS provided a technical comment, which was incorporated.