Public Contract Law Journal

Medicare Part D: Buying Prescription Drugs Wholesale but Paying Retail

by Meghan McConnell

Meghan McConnell ( is a third-year law student at The George Washington University Law School and the Senior Notes Editor of the Public Contract Law Journal. She would like to thank Professor Sonia Tabriz, Sophia Herbst, and Danielle Bereznay for their support throughout this process. Most importantly, she would like to thank her fiancé for his unwavering love and support.

I.   Introduction

Across the country, patients with severe illnesses are delaying treatment, cutting pills in half, or skipping pills altogether because they cannot afford the cost of medication.1 When John Krahne was diagnosed with lung cancer in December 2016, he faced an impossible decision: pay over $6,000 in copayments immediately and start treatment now or wait until January and pay only $3,000.2 Mr. Krahne chose to wait.3 For millions of Americans, even those with health insurance, the cost to treat many illnesses is untenable, easily creeping up to tens of thousands of dollars in out-of-pocket expenses.4 Reflecting on his decision to stall treatment, Mr. Krahne said, “We hope it doesn’t hurt my chance of cure.”5 His story is not unique.

Although U.S. consumers remain outraged over the high price of many prescription drugs, pharmaceutical companies defend their actions by citing the cost of bringing a new drug to market.6 However, U.S. consumers consistently see pharmaceutical prices higher than other countries for the same drugs, largely because manufacturers have few restrictions in setting prices.7 The U.S. drug pricing market is one of the least restrictive in the world, allowing pharmaceutical companies to charge higher prices in the domestic market to compensate for lower prices elsewhere.8 And, unlike some countries with national health insurance programs and uniform drug pricing controls,9 the United States has both government-facilitated health insurance plans and a private market, which negotiate separately with manufacturers.

Prescription drugs account for ten percent of the total health spending in the United States.10 The federal government is the largest buyer in the health care market,11 spending nearly $1.5 trillion annually on health care.12 In 2016, spending on prescription drugs was a staggering $348 billion,13 with the federal government paying approximately forty percent of the cost.14 In addition, Medicare Part D (“Part D”) spending nearly doubled between 2007 and 2015, from $46 billion to $80 billion.15 The cost to consumers is unsustainable for many. Someone with a chronic illness will pay an average of $11,000 for a year’s supply of prescriptions — more than double the cost in 2006.16

A major factor contributing to high drug prices is the introduction of new drugs to the market.17 In late 2013, the Food and Drug Administration (FDA) approved Gilead Pharmaceuticals’ revolutionary hepatitis C cure, Sovaldi.18 In 2014, total U.S. spending on Sovaldi was $7.9 billion, more than the total spent to treat hepatitis C over the previous three years.19 Gilead received criticism and congressional scrutiny for this drug, which averages $84,000 per treatment in the United States.20  But the rise in prescription drug prices is  not isolated to new treatments. Even drugs that have been on the market for decades continue to increase in price.21 Between 2008 and 2016, prices of popular brand-name drugs rose by 208%.22 Since 2002, the price of insulin has tripled, with no remarkable change in the cost of manufacturing.23 The EpiPen, which is used to treat anaphylactic shock by injecting a dose of epinephrine directly into the body,24 has increased in price fifteen times between 2009  and 2016, ultimately swelling to 400%.25 But it is not only the price tag that  is outrageous: consumers in the United States see prices higher than other developed countries. A Senate Finance Committee Investigation found that the price for Sovaldi in the European Union would be discounted twenty-five percent from the cost in the United States.26 Similarly, in Canada, the same treatment costs $34,000 less than in the U.S. market.27


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