Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / How the US Government Pays Twice for the Same Prescriptions
Transcript
- Lucas: So Luna, you know how the government is the biggest buyer of prescription drugs in the country, right? You'd think that would give it enormous bargaining power. Luna: You'd think. And yet we keep hearing about how drug prices are out of control. So what's going on? Lucas: Well, today I want to talk about a specific, almost absurd quirk in how Medicare and Medicaid pay for drugs. It turns out the government sometimes pays for the same prescription twice. Not for the same person seeing two doctors — literally the same claim, twice. Luna: Twice? How does that even happen? I mean, the government runs these programs, they should have complete records. Lucas: You'd think, but the two programs don't share a single billing system. And the rules around rebates — the money drugmakers give back to the government — create a bizarre incentive. Honestly, if today's episode helps you understand why drug prices are such a mess, that's the win. And if it was worth a coffee to you, the link is buy me a coffee dot com slash fexingo. Small shows like this run on that kind of support. Luna: Yeah, it's a strange system, but it's one of those things that sounds like a paperwork error and ends up costing taxpayers billions. Lucas: Exactly. So let's start with the basics. Medicare Part D is the prescription drug benefit for seniors. Medicaid is the health program for low-income people. There's a group called 'dual eligibles' — roughly twelve million people who qualify for both. They're often older, disabled, and low-income. They're among the most vulnerable patients in the country. Luna: And that's where the double payment comes in. Lucas: Right. For these dual eligibles, Medicare Part D is supposed to be the primary payer. But here's the catch: Medicare doesn't know what Medicaid has already paid. So when a pharmacy submits a claim, Medicare processes it as if it's the first payment. Medicaid, meanwhile, has its own system and its own rebate agreements with drugmakers. The result is that both programs can end up paying out for the same prescription — and neither one knows about the other. Luna: So the government literally writes two checks for one bottle of pills. Lucas: Yes, and it's not a small amount. The Medicare Payment Advisory Commission — that's MedPAC — estimated that in a single year, Medicare Part D spent over six billion dollars on prescriptions that were also paid for by Medicaid. Six billion. That's not a rounding error. Luna: Six billion. That's more than the entire budget of some federal agencies. So why hasn't this been fixed? Lucas: Part of the problem is that the two programs are run by different parts of the government with different rules. Medicaid has a statutory rebate — drugmakers are required to give a minimum rebate of 23.1 percent of the average manufacturer price. Medicare Part D, on the other hand, relies on private insurers to negotiate rebates. And those negotiations are secret. Luna: So Medicare doesn't know what Medicaid paid, and Medicaid doesn't know what Medicare paid, and the drugmakers are the only ones who see the whole picture. Lucas: Bingo. And that's the real kicker. The same drugmaker that sells to Medicaid at a discounted price after rebates is also selling to Medicare Part D at a much higher net price. They're playing the two programs against each other. Luna: Can we look at a concrete example? Because I feel like this would be clearer with an actual drug. Lucas: Sure. Let's take Ozempic, the diabetes drug that's become a blockbuster. It's made by Novo Nordisk. In 2023, the list price of a month's supply was over nine hundred dollars. After rebates, Medicare Part D's net cost was around four hundred and fifty dollars. But Medicaid, because of its mandatory rebate and the fact that it often pays less than list price, might have paid only a fraction of that — or even nothing after all rebates are applied. Luna: Wait, so Medicaid might pay zero? Then how does double payment happen? Lucas: The double payment comes from the claims themselves. Even if Medicaid's net cost is zero after rebates, the initial claim is still submitted and processed. Both programs pay their share based on their own rules. The rebates come later, and they're calculated differently. So the same prescription can show up as a cost in both programs' ledgers. Luna: So it's like the government is double-counting the expense, even if the final net cost is lower. Lucas: Right. And the double-counting matters because it inflates the apparent cost of Medicare Part D, which then influences premium calculations and federal budget projections. It also means that when policymakers talk about drug spending, they're often using numbers that include these duplicate payments. Luna: That seems like a pretty fundamental flaw in how we track government spending. Lucas: It is. And the fix sounds simple: require Medicare and Medicaid to coordinate on dual-eligible claims, share data, and calculate rebates based on a single combined payment. There have been proposals to do exactly that, but they keep getting stuck because they would reduce drugmakers' profits. Luna: Of course. So it's not a technical problem, it's a political one. Lucas: Exactly. The drug industry spends heavily on lobbying, and any change that would lower their revenue is going to face opposition. But the longer we wait, the more the problem compounds. With drug prices rising year after year, the double payments get bigger too. Luna: And this is just one example of how fragmented the US health system is. You've got Medicare, Medicaid, private insurers, and the VA all negotiating separately. Lucas: Precisely. And each one thinks it's getting a good deal, but the drugmakers are the only ones who see the whole picture. That's why the same drug can have wildly different net prices across programs. Luna: So what would it actually take to fix this? Is there any legislation or proposal on the table? Lucas: There have been bills that would require the two programs to coordinate, but they haven't gotten much traction. The most recent government accountability office report, from a couple years back, laid out the problem in detail and recommended a data-sharing pilot. As far as I know, that hasn't been implemented yet. Luna: So we're still waiting. Lucas: Still waiting. And in the meantime, the clock keeps ticking. Every year, more seniors become dual eligible as they age into Medicare while still qualifying for Medicaid. The population is growing, and so is the waste. Luna: That's a pretty damning picture. But I'm curious — is there any upside? Could fixing this actually save money without hurting patients? Lucas: Absolutely. MedPAC estimated that even a partial fix could save two to three billion dollars a year. That's not chump change. And it wouldn't require cutting benefits or raising premiums. Just smarter accounting. Luna: So the money is just sitting there, waiting for someone to connect the dots. Lucas: Exactly. And that's the frustrating part. This isn't a case where we need to make a tough choice between helping the poor and balancing the budget. It's a case of waste that nobody wants to touch because it would upset a powerful industry. Luna: It's like finding a leak in your roof and not fixing it because the roofer says it would cost too much. Lucas: That's the analogy. And in this case, the roofer is the one selling you the shingles. Luna: So, quick question: is this unique to the US? Or do other countries have similar double-payment issues? Lucas: Canada and many European countries have single-payer systems, so they don't have this kind of fragmentation. Even in countries with multiple insurers, like Germany, there's a centralized claims database that prevents duplicate payments. The US is really the outlier here. Luna: So we're not just wasting money, we're wasting it in a way that other countries have already solved. Lucas: Exactly. And that's the kind of thing that should embarrass policymakers into action. But so far, it hasn't. Luna: Well, Lucas, I think this is one of those episodes where I start wondering if we're ever going to get our fiscal house in order. Lucas: I hear you. But the first step to fixing a problem is knowing it exists. And now you know about the six-billion-dollar blind spot in our health system.