CBO Finds Increase in Prescription Use Reduces Medicare Services Spending

12.27.2012


On November 29, the Congressional Budget Office (CBO) published "Offsetting Effects of Prescription Drug Use on Medicare’s Spending for Medical Services," an attempt at “estimating the budgetary effects of legislation regarding prescription drugs, and the offsetting effect of prescription drug use on spending for medical services.”

The study indicates that there is a link between changes in prescription drug use and changes in the use of and spending for medical services. Very specifically, the CBO report concludes that “a 1 percent increase in the number of prescriptions filled by Medicare beneficiaries would cause Medicare’s spending on medical services to fall by one-fifth of 1 percent.”

The study reports that “in the first two years of Medicare’s Part D program, which was created in 2003 with the passage of the Medicare Prescription Drug, Improvement, and Modernization Act and implemented in 2006, the number of prescriptions filled by Medicare beneficiaries increased by more than 10 percent.” More recently, “Part D was expanded by the Affordable Care Act, which, between 2011 and 2020, is gradually closing the Part D gap in coverage, which is expected to further boost the use of prescription drugs.”

The study finds that “people respond to changes in cost sharing by changing their consumption of prescription drugs. In other words, the number of prescriptions filled increases in response to price reductions and falls in response to price increases.” The report documents what several other studies have found, “that lower prices for drugs used to treat chronic conditions improve the likelihood that patients take their medication as prescribed.”

The CBO study indicates that “changes in the use of prescription drugs have the potential to affect the use of medical services.” Most often, “pharmaceuticals have the effect of improving or maintaining an individual’s health.” In addition, “taking the medication may also avert hospital admissions and thus reduce the use of medical services.” CBO found several new studies that demonstrate a connection between prescription drug use and the use of medical services, suggesting that “people who received more generous prescription drug coverage through the implementation of Part D had fewer hospitalizations and used fewer medical services as a result.”

Based on several studies conducted by various entities since implementation of Part D, CBO concludes that “a 1 percent increase in prescription drug use would cause spending for medical services to fall by roughly one-fifth of 1 percent; likewise, a 1 percent decrease in prescription drug use would cause medical spending to increase by roughly one-fifth of 1 percent.”

Therefore, in estimating the budgetary impact of future legislation or proposals that would directly affect prescription drug use in the Medicare program, “CBO will include an offsetting effect on medical spending by first estimating a proposal’s direct effect on prescription drug costs; then by estimating the effect on the number of prescriptions filled and any resulting offsetting effect on spending for medical services.”

As a result, CBO estimates that “federal spending for Medicare Part D will increase by $86 billion from 2013 to 2022.” Applying the offset discovered through the research mentioned here, CBO estimates that “there will also be a reduction in federal spending for medical services under Medicare by $35 billion.” The CBO study therefore concludes that “the net cost of implementing the provisions closing the Part D coverage gap will be $51 billion from 2013 to 2022, rather than the $86 billion previously estimated.”


ABOUT THE AUTHOR
Rafael Gonzalez is director of Medicare compliance and post settlement administration at Gould & Lamb, LLC in Bradenton, Fla. Gould & Lamb is a provider of Medicare compliance services to the global insurance and self-insurance marketplace. Since 2001, the company has successfully completed over 80,000 Medicare set-asides and over 56,000 CMS submissions.

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