The prices Medicare paid for prescription drugs last year were 29% higher than what physicians and drug suppliers paid for the same drugs, according to a new federal report.
The report, released last week by HHS' inspector general's office, could fuel calls for more regulation requiring lower drug prices for federal programs.
The Pharmaceutical Research and Manufacturers of America would not comment on the report.
But a representative of group purchasing organizations warned against Medicare seeking greater prescription drug discounts.
Robert Betz, executive director of the Health Industry Group Purchasing Association, said drug companies could raise prices to physicians and drug suppliers to offset the decline in their margins if forced to lower their federal prices.
A reduction in what Medicare pays for prescription drugs mandated by the recently enacted federal balanced-budget law still won't bring those prices in line with what private purchasers pay for the same drugs, the report said.
An analysis by HHS' inspector general's office of 1996 Medicare payments for 22 prescription drugs found Medicare paid $1.5 billion, $447 million more than if it had paid actual wholesale prices offered by wholesale drug companies and group purchasing organizations.
Projecting a savings of 29% from the sample of 22 drugs, the inspector general's office report said Medicare could have saved $667 million from total expenditures of $2.3 billion in 1996 had it paid actual wholesale prices.
Although Medicare does not pay for most self-administered outpatient drugs, it does pay for such drugs related to use of durable medical equipment, infusion therapy, organ transplants, kidney failure, osteoporosis, chemotherapy and vaccines for flu, pneumonia and hepatitis B.
For those drugs, Medicare has the option of paying either the lower of the average wholesale prices, as reported by the pharmaceutical industry, or the estimated acquisition cost, which is based on surveys of the actual invoice prices paid for drugs.
In practice, however, Medicare carriers use the average wholesale price, which is an industry-provided figure that is higher than actual wholesale, the report said.
Beginning Jan. 1, Medicare will pay 95% of the average wholesale prices.