NCPA - National Center for Policy Analysis


February 19, 2008

Evidence from a large retail pharmacy chain suggests that Medicare Part D (the federal program to subsidize the costs of prescription drugs for Medicare beneficiaries) increased the number of prescriptions used by the elderly and reduced their out-of-pocket drug spending, say Frank R. Lichtenberg and Shawn X. Sun in Health Affairs.

According to the authors:

  • Medicare Part D reduced user cost among the elderly by 18.4 percent, increased their use of prescription drugs by about 12.8 percent and increased total U.S. usage by 4.5 percent in 2006.
  • The estimated crowd-out rate was about 72 percent: Every seven prescriptions paid for by the government crowded out five other prescriptions and resulted in only two additional prescriptions used.

Further, there is evidence that although reducing the user cost of prescription drugs increases drug spending, it reduces other medical spending, because it increases compliance with drug therapy.  According to Dana Goldman and colleagues in the American Journal of Managed Care:

  • There exists a large inverse relationship between copayments and compliance in all risk groups: for each $10 rise in copayments, average compliance in a plan-year fell by five percentage points.
  • They estimated that if the health plans had reduced high- and medium-risk patients' copayments on cholesterol-lowering medications from $10 to $0, their pharmacy payments would have increased by $486 million, but their inpatient hospital spending would have declined by $839 million.

In addition, their spending on emergency department visits would also have declined.  The 18.4 percent decline in the amount paid by patient per day of therapy attributable to Medicare Part D has probably reduced Parts A and B spending, but the magnitude of the decrease is not yet known.

Source: Frank R. Lichtenberg and Shawn X. Sun, "The Impact Of Medicare Part D On Prescription Drug Use By The Elderly," Health Affairs, November/December 2007.

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