What if the federal government negotiated pharmaceutical prices for seniors? An estimate of national savings

BACKGROUND: The government is prohibited from directly negotiating drug prices for Medicare Part D, resulting in substantial policy debate. However, the government has an established mechanism for setting prices with pharmaceutical manufacturers for certain other federal programs - the Federal Supply Schedule (FSS). OBJECTIVE: To estimate how much could be saved nationwide if prices equivalent to the 2006 FSS were achieved for the top 200 drug formulations dispensed to seniors. DESIGN/SETTING: Cross-sectional analysis of drug utilization patterns and costs from the nationally representative Medical Expenditure Panel Surveys (MEPS), 2003-2004, and the 2006 FSS. PARTICIPANTS: Seniors who filled a prescription for any of these common drugs (n = 6,135 individuals). MEASURES: Prescription expenditures were obtained from MEPS, and a price/unit was calculated in 2006 dollars. This price/unit was compared to the 2006 FSS, and a savings/unit was calculated and summed across the observed units dispensed in MEPS. RESULTS: The potential annual savings with FSS prices would be $21.9 billion [95% confidence interval (CI), $21.1 billion to $22.8 billion]. If FSS prices were substituted for only the top ten drugs, the annual savings would be $5.9 billion (95% CI, $5.7 billion, $6.1 billion). CONCLUSIONS: Extension of existing price setting mechanisms to Medicare could save tens of billions of dollars if prices similar to those already achieved by other federal programs could be reached. Whether or not this is a political or economic possibility, the magnitude of these savings cannot be ignored.