The implementation of Medicare Part D was associated with an increase in spending on prescription drugs, and the magnitude of the increase varied according to the enrollees’ previous drug coverage. Two years after the implementation of Part D, enrollees who had no previous coverage or whose pharmacy benefits were capped at $150 or $350 per quarter had increased their drug spending by 74%, 27%, and 11%, respectively, as compared with spending in the no-cap group, which had stable coverage during the same period. Enrollees with either hyperlipidemia or diabetes who had no previous coverage had an increase of 44% in the number of prescriptions they filled for medications to treat those conditions, as compared with that in the no-cap group. Among enrollees with a $150 quarterly cap, the number of prescriptions for antihyperlipidemic drugs increased by 31%, and the number of prescriptions for antidiabetic drugs increased by 13%.
After 2 years of Part D, enrollees in the no-coverage group had increased their monthly drug spending by $41, as compared with that in the no-cap group, but that was roughly offset by a decrease of $33 in their monthly medical spending, perhaps because increased use of medication led to improved control of chronic illnesses. Similarly, the group with a previous $150 quarterly cap on drug spending increased their drug spending by $27, which was offset by a decrease of $46 in their medical spending. The group with a previous $350 quarterly cap spent $13 more on drugs and $30 more on other medical services.
Before the implementation of Part D, 18% of Medicare beneficiaries nationally did not have prescription-drug coverage.25
In addition, most enrollees in Medicare Advantage plans had an annual cap of $1,000 or less on their pharmacy benefits.26
Hsu et al.8
reported that a $1,000 cap in a large Medicare managed-care plan in 2003 was associated with reduced adherence to drug regimens and higher rates of emergency-department visits, nonelective hospitalizations, and death. The savings that were associated with lower drug expenditures from the $1,000 annual cap were almost fully offset by increased costs for hospitalizations and emergency-department visits.
The offsetting reduction in medical spending in the two groups with the most limited previous benefits was probably due to improved medication adherence among enrollees with chronic conditions. The increase in the number of prescriptions that we observed among enrollees with hyperlipidemia or diabetes is consistent with this observation, as was the finding by Madden et al.27
that the proportion of Medicare enrollees who skipped or reduced doses or did not fill prescriptions because of cost decreased from 14.1% in 2005 to 11.5% in 2006.
Why did medical spending rise in the group with a previous $350 quarterly cap (the most generous previous coverage among the three intervention groups), as compared with the no-cap group? The additional use of prescription drugs in all three groups probably included both overuse of some drugs and underuse of others, but the proportion of the increase that was overuse may have been highest in the group with the most generous previous coverage. Our finding that the use of oral antidiabetic drugs did not change significantly in this group is consistent with this hypothesis.
Our findings are subject to several limitations. They come from a Medicare Advantage plan and may not hold for stand-alone Part D plans, because Medicare Advantage plans have an incentive to structure copayments and formularies to minimize spending in Parts A and B, whereas stand-alone plans do not. Our study used data from a single insurer in one region, although the drug benefits before the implementation of Part D in our study span a range of benefits, as did coverage nationally.25
To the degree that enrollees without drug benefits filled prescriptions from non-network pharmacies in 2004 and 2005, we overestimate the effect of Part D on pharmacy utilization. We believe this bias is small because enrollees received a 15% discount at network pharmacies and because the plan contracted with a large pharmacy-benefit manager with a network of 58,000 pharmacies nationwide, so there were few pharmacies that did not participate. In addition, for enrollees who had some drug coverage before Part D, the plan paid benefits only for prescriptions that were filled at participating pharmacies.
Our findings suggest that Part D increased the use of prescription drugs among enrollees who previously had either no drug coverage or modest benefits and that the cost of the increased use was approximately offset by decreases in other medical spending. Whether Part D overall had any effect on the total cost of Parts A and B, however, is less clear in light of our finding that enrollees with the most generous benefits before the implementation of Part D increased their medical spending. Thus, the CBO estimate of no net effect of Part D on Parts A and B of Medicare spending may well have been approximately correct.