The US Medicare programme’s prescription drug benefit created a “windfall” for drugmakers of at least $3.7 billion, and possibly billions more, in its first two years of operation, Congress has heard.

This is because Medicare, the federal programme which provides health care for seniors and the disabled, has been paying an average of 30% more than Medicaid (the programme covering people on low incomes) for the same prescription drugs, says new research conducted by the House Committee on Oversight and Government Reform.

The study, which was released during a hearing held by the panel last week, looked specifically at the costs of providing prescription drugs to around 6 million “dual eligibles” – people who qualify for both Medicare and Medicaid. When the Medicare prescription drug benefit (known as Part D) was introduced in January 2006, these beneficiaries, who had previously received their drugs through Medicaid, were switched to Medicare. Dual-eligibles are generally the poorest and sickest people in the country and they now account for more than half of the Part D programme’s total drug costs.

According to the study, 29 large drugmakers which produce the 100 drugs used most often by dual-eligibles received at least $3.7 billion more from the Medicare Part D insurers in 2006 and 2007 than they would have if these beneficiaries had obtained their drugs through Medicaid.

Johnson & Johnson received the largest windfall, at $615 million, which includes over $500 million in additional revenue from sales of just one drug, the anti-psychotic Risperdal (risperidone), while Bristol-Myers Squibb’s windfall was $400 million, including over $200 million in additional revenue from sales of its heart-attack and stroke drug Plavix (clopidogrel). Overall, nine drugs each generated over $100 million more in revenues during the two years than they would have if Medicare Part D insurers had secured the discounts applying to Medicaid. For these nine drugs, manufacturers charged the private Medicare Part D insurers 46% more than they charged Medicaid, the report says.

Moreover, it adds, dual-eligibles use many drugs not included in the top 100 and, if the price discrepancy is the same for these other drugs, the manufacturers’ windfall could be worth billions of dollars more than $3.7 billion.

“This is an enormous giveaway and it has absolutely no justification,” Committee Chairman Henry Waxman told the hearing. “The privatization of Medicare Part D is a great deal for the drug companies. And it’s a great deal for the private insurers. It’s the taxpayers who are taking it on the chin,” he said.

Sen Waxman added that he will shortly be introducing legislation to guarantee that higher prices cannot be charged for drugs for dual-eligibles under Medicare Part D than under Medicaid.

He also noted that the Committee report, which uses confidential information on drug prices provided voluntarily by insurers and drugmakers, is the only in-depth oversight of Part D to be undertaken. The Government Accountability Office (GAO) and the Congressional Budget Office (CBO) have been unable to review how well it is working because the Centres for Medicare and Medicaid Services (CMS) will not give them the data, while the CMS, which does have access to the data, refuses to acknowledge fundamental flaws in the programme, he said.

In 2006 and 2007, Medicare Part D cost the federal government $47 billion and $49 billion, respectively. Over the next decade it is forecast to cost $900 billion, with dual-eligibles expected to use $432 billion worth of drugs. If drugmakers provided Part D with the same prices as Medicaid, these costs could be reduced by as much as $86 billion and, if Medicare negotiated directly with them and obtained prices equivalent to Medicaid for all its beneficiaries – not just the dual-eligibles - the potential savings increase to $156 billion, said the panel.