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Medicare Part D’s Effect on Drug Use, Other Medical Services, and Health

Posted Jul 21 2010 12:11am

Medicare Part D increases beneficiary utilization of drugs, but does not decrease utilization of other medical services or improve health.

That is the conclusion Kaestner and Khan (2010) reach using data from the Medicare Current Beneficiary Survey .  Many other studies have found that prescription drug insurance plans increase drug use.  After Medicare Part D drug insurance was enacted, Lichtenburg and Sun (2007) found a 12.8% increase and Yin et al. (2008) calculated a 5.9% rise in drug use.  The Kaestner and Khan paper, however, finds that “Medicare Part D was associated with an 63% increase in the number of annual prescription.”  Even among individuals in poor health, whose demand for pharmaceuticals may be more inelastic, “gaining prescription drug insurance was associated with a 56% increase in the number of annual prescription.”  The direction of these findings should not be surprising, but the magnitude maybe shocking.

If the large increase in pharmaceutical consumption is offset by decreased hospitalization rates or use of other medical services, Part D may still be cost saving.  In fact, Zhang et al. (2009) found that individuals covered by Kaiser Permanente, “gaining prescription drug use was associated with a 7% decline in medical (non-pharmacy) spending.”  Kaestner and Khan, on the other hand, find that increased drug utilization has little effect on the use of other medical services for most beneficiaries.  In the case of outpatient visits, however, gaining prescription drug insurance decreased outpatient visits among those in poorer health. “For this group prescription drug insurance was associated with three less outpatient visits per year, which is approximately 40% of a standard deviation fewer visits.”  Thus, Part D could create some cost savings in other areas of Medicare.

Finally, the authors find that Part D has no effect on health in terms of either functional status or self-reported health.  [The authors measure functional status as the number of ADLs and IADLs .] In fact, the authors note the following: “If anything, estimates suggested that gaining prescription drug insurance was associated with worsening health.” Could this be because some physicians overprescribe drugs which could actually worsen outcomes?  Is functional status and self-reported health sufficiently precise to capture the benefit of these drugs?  Are the benefits of pharmaceuticals generally confined to short-run benefits ?

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