The Crazy Way the Government Buys Billions of Dollars of Drugs

The U.S. government buys a lot of drugs. Purchases by the Pentagon, Medicare, Medicaid, and other federal programs account for more than a quarter of all U.S. retail prescription spending, which reached $263 billion (PDF) last year. You might think that kind of buying power would entitle Uncle Sam to get the best price all the time. If only that were true. The government pays vastly different prices for medicines depending on which office is buying them, according to a new report (PDF) from the Government Accountability Office.

Medicaid, which provides coverage to poor people through state-run programs, gets the best deal. Medicare Part D, which covers the elderly through private insurance, pays the most for brand-name drugs. And the Department of Defense pays the most for generics, according to the GAO’s analysis of what the government paid for 78 common drugs in 2010.