Study: Medicare Drug Plan Cutting Costs for Seniors

CHICAGO – After a rocky start, Medicare’s drug benefit appears to be delivering a lower prescription tab for seniors, along with a whopping bill for the federal government, new research shows.

The Medicare drug benefit led to a 17 percent decrease in out-of-pocket expenses, or $9 a month, for seniors who enrolled in the new Medicare Part D benefit in 2006, the first full year prescription coverage became available in the federal health insurance program for the elderly and disabled.

The savings amounted to an extra 14 days of medicine for those who signed up, or a 19 percent increase in prescription usage, according to a study released Tuesday on the Web site of the Annals of Internal Medicine (www.annals.org), which will publish a print edition Feb. 5.

The study, considered by its authors to be the first in-depth independent examination of the impact of Part D, does not reveal shocking surprises in usage, considering the desire of seniors to have drug coverage. But its authors said the program was clearly working, reflecting the experiences of millions of Americans.

"We found that it had a modest but significant effect on both savings and drug use," said Dr. G. Caleb Alexander, assistant professor of medicine at University of Chicago Medical Center and one of the study’s authors. "Despite extensive debate, it was not clear to what extent Part D would save people money or allow them to obtain drugs they might not otherwise be able to afford."

The Medicare Modernization Act established a drug benefit for Medicare’s more than 43 million Medicare beneficiaries. Not all had access to prescription coverage under Medicare before the law, in what became the largest expansion of the Medicare program since the program’s inception more than four decades ago.

Unlike studies that have focused largely on those who are covered under the Part D drug benefit, researchers say their work is different because it compared out-of-pocket costs and the number of pills bought by those who were eligible to patients who were not. They also compared those eligible for Part D who enrolled to those who did not sign up. Part D enrollment "stabilized" after the May 15, 2006 sign up deadline, and the study looked at the first year’s usage to determine the $9 a month prescription savings. Distributed across the entire pool of Medicare beneficiaries, the drug benefit led to a 13.1 percent decrease in out of pocket expenses, or $5 a month, and a 5.9 percent increase in prescription use.

Alexander said some may consider such savings as "insufficient and not worth the money," but there is other research that has been reported that shows increased drug usage may lead to fewer visits to doctors and hospitals and therefore cost savings.

But because the study did not look at such health outcomes, it fell short, an accompanying "audio editorial" on the Annals’ Web site said. That, however, was not so much the fault of the authors but the federal government, which has yet to release Medicare claims data that would help answer questions about the quality of care seniors were receiving with their new benefit and whether drugs were being used appropriately.

The study, the editorial noted, looked at prescription usage and not drug usage, which is different because some seniors are known to not take the medicines in their prescriptions. Still, Medicare’s drug benefit, which overcame initial computer glitches and some confusion by consumers, brought an estimated 10 million seniors who had no drug coverage an array of options for prescription benefits, the Centers for Medicare & Medicaid Services said.

Critics of the drug benefit have noted that it has caused runaway growth in total Medicare spending.

Full implementation of the new Medicare drug benefit contributed to an 18.7 percent increase in total Medicare spending in 2006.

While such growth is not a surprise given the creation of a new entitlement, it was the fastest growth rate since 1981 and double the increase in 2005, federal officials said as part of a report, announced Tuesday by government officials and published in the January/February issue of the Journal Health Affairs.

Medicare spending jumped to $401.3 billion in 2006 compared to $338 billion in the year earlier period, according to the report from researchers from the Centers for Medicare & Medicaid Services, which administers the Medicare program.

The benefit helped drive total U.S. prescription spending up 8.5 percent in 2006 compared to 5.8 percent. That, however, is below the average annual rate of increases of 13.4 percent between 1995 and 2004.

Among the more controversial Part D options were choices sold by private health insurance companies and pharmacy benefit firms, which have seen their stock prices climb in the last two years in part because of subsidies brought by new Medicare money.

Humana, Inc., for example, which offers drug benefits to Medicare recipients through drug-only plans and managed-care plans that offer additional health benefits such as physician care, has seen its stock price soar more than 55 percent in the last year. That’s thanks in part to money it has made off the Medicare program. Meanwhile, share prices of pharmacy benefit management companies like Medco Health Solutions Inc. and Express Scripts Inc., have soared more than 90 percent and 120 percent respectively since January of last year.

Private insurers and drug benefit companies administering the drug benefit say their efforts through tiered co-payment structures and coinsurance helped drive seniors to cheaper generic drugs that have helped restrain drug spending growth.

"Pharmacy benefit managers are helping to keep prescription drug prices stable, while also expanding access," said Mark Merritt, president and chief executive of the Pharmaceutical Care Management Association, a lobby that represents large drug benefit firms like CVS/Caremark Corp., Express Scripts and Medco Health Solutions. "The (Health Affairs/CMS) report shows that proven pharmacy benefit management tools like tiered co-payment structures, co-payment waivers, and step therapy are major factors helping to hold down drug (costs)."