Our study has three main findings. First, we found that the cost per prescription was more important than the volume of prescriptions filled in explaining regional variation in overall Medicare Part D spending. Second, one cannot generalize entirely from the aggregate regional associations to specific categories. Although variation in expenditures for ACE inhibitors and ARBs and for statins was driven primarily by differences in the cost per prescription, most of the variation in spending for SSRIs and SNRIs was due to volume differences. This finding may reflect differences in patient preferences for antidepressant treatment, although studies have shown little variation in preferences for treatment generally,21
or the propensity of physicians to treat depression in elderly patients. Our third main finding is that at the regional level, the cost per prescription closely paralleled the ratio of branded-drug prescriptions to total prescriptions.
Substantial variation in benefit design across Part D plans22
may partially explain the widespread variation in branded-drug use.23
Part D plans differ with respect to the drugs covered and beneficiary cost-sharing. Many Part D plans have adopted three-tiered formularies, which create powerful incentives for consumers to use lower-cost drugs and may reduce drug spending.24,25
The average copayment for a generic in Part D plans with three-tiered formularies is $7, as compared with $37 to $75 for prescriptions for branded drugs.22
The steep gradient in cost sharing between generic and branded drugs in Medicare means that a reduction in branded-drug use in high-spending regions would result not only in lower Medicare drug spending but also in lower out-of-pocket costs to beneficiaries. A reduction of the financial burden of prescription-drug use on the elderly through greater use of generics may improve medication adherence26
and ultimately lead to better health outcomes.
The clinical and policy implications of our findings depend critically on the question of the right rate of use of prescription branded drugs. A rate of zero would minimize costs but would deprive some patients of needed treatment options. Prescriptions written for branded drugs with generic equivalents are filled with the generic 88% of the time in Medicare.23
This substitution is probably appropriate, given the evidence of equivalent effectiveness for generics in most drug classes.27,28
However, most variation in branded-drug use stems from the prescription of drugs without generic equivalents. For example, there were considerable differences in the use of ARBs (all of which were branded during our study period) as compared with that of ACE inhibitors (most of which were generic) across regions. ACE inhibitors and ARBs have similar effectiveness11,29,30
but different side-effect profiles. ARBs are recommended for patients in whom dry cough or angioedema develops with ACE inhibitors; however, the incidence of these side effects is quite low.31,32
Therefore, even if the rates of these effects were found to vary across regions, such case-mix differences would be unlikely to fully explain the magnitude of variation in the use of ARBs.
Although it is unclear what rate of branded-drug use among Medicare beneficiaries would be preferable, our finding that branded-drug use differed by a factor of almost two across regions provides a signal of potentially wasteful prescribing in some regions. We estimate that the Medicare program and beneficiaries would have saved $4.5 billion if branded-drug use in all HRRs had been similar to that in the lowest quintile. This finding is consistent with studies showing the potential for greater generic use and resultant savings on the part of commercial insurance plans, Medicaid, Veterans Affairs medical centers, and the elderly.7,23,33–36
Our study has important limitations. We examined variation in three categories regardless of clinical indication, which may influence patterns of use. We adjusted our measures for demographic, socioeconomic, and health status but not for Part D plan characteristics, which may affect medication use. Moreover, our risk-adjustment measure may not have adequately adjusted for health status. However, given that the RxHCC classification system outperforms most risk-adjustment models,15
we expect bias to be minimal. Our analysis includes only persons with 12 months of continuous enrollment in PDP plans, which provide coverage for approximately 55% of Medicare beneficiaries nationally,37
and drug use by other Medicare beneficiaries may differ. Finally, we do not have information on rebates negotiated by Part D plans with pharmaceutical manufacturers, which could vary by region and affect branded-drug use.
In conclusion, regional variation in Medicare Part D spending primarily reflects differences in the cost of drugs selected rather than the volume of drugs used. An increase in the use of lower-cost agents could substantially reduce Medicare program spending and out-of-pocket costs for beneficiaries without compromising the quality of care or health. These savings could be realized by modifying the benefit design and utilization management of Part D plans in high-cost regions.