Could Costco Be the Answer to Medicare Part D Restructuring?

A new analysis published in JAMA Internal Medicine suggests that Medicare “overspent” on certain popular generic drugs over a two-year period and could have saved billions of dollars if it had used a “streamlined distribution system” like that of popular wholesaler Costco. While the research highlights how inefficiencies in the current Medicare Part D structure impact an oft-ignored area of drug pricing, one industry analyst questions whether it’s a fair comparison, given that Costco’s business model isn’t focused on pharmaceuticals.

The analysis, which was posted online as a research letter and was prepared by researchers with the USC Leonard D. Schaeffer Center for Health Policy & Economics, compared the prices paid by Medicare Part D on 184 frequently purchased drugs in 2017 and 2018 with prices available to consumers at Costco pharmacies nationwide for that time period. Total Part D payments for such drugs included beneficiary out-of-pocket (OOP) costs, which the authors noted were minimal to zero for the approximately 30% of beneficiaries receiving low-income subsidies. The Costco price estimates did not include the retailer’s annual membership fee, since such fees account for just 2.2% of the company’s annual revenues and are unlikely to be “materially subsidizing product prices,” they wrote.

© 2021 MMIT

Lauren Flynn Kelly Managing Editor, Radar on Medicare Advantage

Lauren has been covering health business issues, including drug benefits and specialty pharmacy, for more than a decade. She served as editor of Drug Benefit News (the predecessor to Radar on Drug Benefits) from 2004 to 2005 and again from 2011 to 2016, and now manages Radar on Medicare Advantage. Lauren graduated from Vassar College with a B.A. in English.

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