Strategies for Containing Drug Costs: Implications for a Medicare Benefit

As policymakers consider adding a prescription drug benefit to Medicare, cost containment will be an important issue. This article discusses strategies to hold down the prices paid for prescription drugs. Within the private sector these include the use of formularies, the emergence of pharmaceutical benefit management companies, and the expansion of mail order pharmacies. In the Federal Government, costs are contained by the Medicaid drug rebate and the Federal Supply Schedule (FSS) of prices. Since Medicare beneficiaries constitute a large share of the prescription drug market, getting access to FSS prices may not be feasible. A flat rebate is one alternative.