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.

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