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NATIONAL CENTER FOR POLICY ANALYSIS
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Medicare Reform and Prescription Drugs: Ten Principles
Principle No. 2: The Failure to Cover Prescription Drugs Creates Incentives to Substitute More Costly Therapies.
Dollar for dollar, drugs often provide a better return on health care spending than do other major therapies. Chronic conditions such as asthma, diabetes, hypertension and even congestive heart failure can be treated far more cost-effectively with drugs. Yet Medicare's practice of covering very few prescription drugs encourages doctors and their elderly patients to choose physician, emergency room and hospital services instead. An exhaustive study by Prof. Lichtenberg found that the number of hospital stays, bed days and surgical procedures declined most rapidly for those diagnoses with the greatest increase in the total number of drugs prescribed and the greatest change in the use of new drugs. His estimates imply:14

  • An increase of 100 prescriptions is associated with 1.48 fewer hospital admissions, 16.3 fewer hospital days and 3.36 fewer inpatient surgical procedures.


  • A $1 increase in pharmaceutical expenditures is associated with a $3.65 reduction in hospital care expenditures.
The decline in total spending due to greater use of prescription drugs is particularly notable in the treatment of cancer, heart disease, Alzheimer's, AIDS and mental illness.15 For the near future, we can expect more of the same. Most of the expensive new drugs launched in the past few years, such as Rezulin for diabetes, Zocor for cholesterol, Zyprexa for schizophrenia and Claritin for allergies, stabilize patients with chronic conditions. This decreases hospital admissions, shortens hospital stays and lessens reliance on doctors even as it increases the bill for prescription drugs.16 Yet without drug coverage, many seniors rely on older, more costly therapies.

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