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State Savings with an Efficient Medicare Prescription Drug Benefit

State Savings with an Efficient Medicare Prescription Drug Benefit

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Americans pay far higher prices for prescription drugs than do people in other wealthy countries. The reason that other countries spend so much less on drugs is that their governments negotiate prices with the pharmaceutical industry. The United States government could adopt the same approach with the Medicare drug program and use its market leverage to negotiate the same, or even lower, prices as are paid by other wealthy nations. This issue brief finds the potential savings to states would be enormous, cumulatively between $31 billion and $73 billion over 10 years, and also each state individually could expect significant savings. California leads the way, with potential savings between $3.3 and $7.8 billion. The next six top-saving states are Florida, New York, Texas, Pennsylvania, Ohio and Illinois, all with projected savings of at least $1 billion per year. Even those states with the least potential savings, such as Wyoming, North Dakota and Vermont, would still save tens of millions of dollars over a decade.
Americans pay far higher prices for prescription drugs than do people in other wealthy countries. The reason that other countries spend so much less on drugs is that their governments negotiate prices with the pharmaceutical industry. The United States government could adopt the same approach with the Medicare drug program and use its market leverage to negotiate the same, or even lower, prices as are paid by other wealthy nations. This issue brief finds the potential savings to states would be enormous, cumulatively between $31 billion and $73 billion over 10 years, and also each state individually could expect significant savings. California leads the way, with potential savings between $3.3 and $7.8 billion. The next six top-saving states are Florida, New York, Texas, Pennsylvania, Ohio and Illinois, all with projected savings of at least $1 billion per year. Even those states with the least potential savings, such as Wyoming, North Dakota and Vermont, would still save tens of millions of dollars over a decade.

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Categories:Types, Research
Published by: Center for Economic and Policy Research on Mar 19, 2013
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 Issue Brief 

March 2013
* Nicole Woo is the Director of Domestic Policy at the Center for Economic and Policy Research, in Washington, D.C. Dean Baker is an economist and the Co-Director of CEPR.
State Savings with an EfficientMedicare Prescription Drug Benefit
 Americans pay far higher prices for prescription drugs than do people inother wealthy countries. This is true for the Medicare prescription drug program also. The reason that other countries spend so much less ondrugs is that their governments negotiate prices with the pharmaceuticalindustry. While they grant patent monopolies to the industry that preventcompetitors from selling the same drugs at lower prices, thesegovernments use their large market shares to prevent the drug companiesfrom charging exorbitant prices. The United States government could adopt the same approach withMedicare, which also provides a huge market, actually far larger thanmany other countries. Medicare could use its market leverage to negotiatethe same, or even lower, prices as are paid by other wealthy nations. Thepotential savings would be enormous.Recently CEPR estimated that the federal government could save from$230 billion to $541 billion over the next ten years if Congress and thePresident were to enable Medicare to negotiate prescription drug prices,as is done in other wealthy countries.
1
  These estimates are based on the projection that the United States wouldspend $883 per person on prescription drugs in 2012.
2
This is nearly twiceas high as in other wealthy countries. For example, Canada spends a bitover 70 cents for each dollar spent in the United States per person onprescription drugs. The United Kingdom spends just under 40 cents, andDenmark only about 35 cents.
3
 State governments pay into the Medicare drug program as well, to cover aportion of foregone drug costs for those beneficiaries who are dually-eligible for Medicaid and Medicare.
4
In the low savings case, where theUnited States spends as much on drugs as Canada, the cumulative savingsto state governments would be $31 billion. In the high saving case, where we paid the same amount for our drugs as people in Denmark, thesavings to the states would be $73 billion.How much could each state expect to save individually?
 Table 1
showsprojected savings to individual state governments if Medicare wereallowed to negotiate prescription drug prices.
5
 
Center for Economic andPolicy Research
1611 Connecticut Ave, NWSuite 400Washington, DC 20009tel: 202-293-5380fax: 202-588-1356www.cepr.net
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CEPR State Savings with an Efficient Medicare Prescription Drug Benefit

2
TABLE 1
:
State Government Savings from Negotiated Medicare Prescription Drug Prices,
 
byState, 2013-2022
 StateLow Savings (Canadian Prices),in millions of dollarsHigh Savings (Danish Prices),in millions of dollarsAK $ 36 $ 85AL 526 1,240AR 305 718AZ 553 1,303CA 3,311 7,804CO 344 810CT 405 954DC 56 132DE 99 233FL 2,560 6,033GA 768 1,811HI 100 236IA 283 668ID 114 270IL 1,255 2,957IN 634 1,495KS 262 618KY 469 1,105LA 514 1,211MA 767 1,808MD 572 1,349ME 150 352MI 1,154 2,720MN 449 1,057MO 627 1,478MS 341 803MT 82 192 NC 923 2,175 ND 56 132 NE 165 388 NH125 294 NJ 1,016 2,394 NM 161 380 NV 218 513 NY 2,230 5,256OH 1,261 2,971OK 387 913OR 325 766PA 1,556 3,666RI 119 281SC 472 1,112SD 72 169TN 676 1,594TX 2,178 5,134UT 149 352VA 637 1,502VT 62 145WA 522 1,229WI 520 1,225WV 230 543WY 42 99
Total $ 30,838
 
$ 72,679
 Source: Authors' calculations, OECD, Centers for Medicare & Medicaid Services, MedicareTrustees' Report, and Congressional Budget Office. See Appendix for details and methodology.
 

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