Grant Description: Is the cost of adding a prescription drug benefit to Medicare offset by a decrease in costs for other health care services? Researchers at the University of Washington examined this question by looking at the effects of prescription drugs on more resource-intensive care. Using a sample of enrollees in a Medicare HMO administered by the Group Health Cooperative (GHC) of Puget Sound, they tested the following hypotheses: 1) as pharmaceutical benefit comprehensiveness increases, Medicare enrollees engender higher outpatient pharmacy costs, but lower costs for other outpatient and inpatient services; and 2) the effects of increasing prescription drug benefits generosity is amplified for low-income individuals. Their goal was to inform the current debate about Medicare prescription benefits on the possible cost off-setting that could be associated with improving pharmaceutical coverage for the elderly.
Policy Summary: The Medicare Enrollee Drug Study (MEDS) explored the relationship between prescription drug coverage and health care costs in a sample of elderly Medicare+Choice enrollees. In particular, MEDS had the goal of assessing for any cost offsets (i.e., the drug costs of persons with a benefit might be partially or fully offset by a reduction in other health care costs)—a key issue in the current debate over how to add prescription drug coverage to Medicare. The sample included elderly Medicare recipients who were enrolled in Group Health Cooperative (GHC), a large, established HMO that offers a comprehensive, coordinated-care Medicare+Choice plan. The sample included persons with one or more of hypertension, diabetes, congestive heart failure, or coronary artery disease—all conditions for which medications are known to reduce morbidity and mortality. Because 85 percent of GHC enrollees are served by owned clinics with on-site pharmacies, MEDS was able to capture most enrollees’ pharmacy utilization patterns, regardless of their prescription benefit status. The key observations from MEDS are that seniors who lacked prescription drug coverage faced significantly greater non-pharmaceutical-related costs of care than seniors who had drug coverage and that the savings in inpatient (hospital) costs more than offset the cost to the plan of medications for those with a benefit. These cost assessments were complemented by a companion study, “Prescription Benefits as a Quality Measure,” funded by a grant from the Agency for Healthcare Research and Quality (AHRQ). The AHRQ study explored the relationships between prescription drug benefit status and several aspects of health care, including medication adherence and risk of hospitalization. Key findings from the ARHQ-funded project were that seniors who lacked prescription drug coverage were more likely to report problems affording medicines, had worse adherence to medication regimens, and, most importantly, faced a greater risk of hospitalization over the two-year period studied. Taken together, these observations suggest that using GHCs’ approach to designing a prescription drug benefit may reduce overall health care costs among persons with selected, common, chronic health conditions. Key elements of the GHC approach include limited cost sharing with low co-payments and no annual or lifetime caps, reliance on a closed formulary emphasizing generic medications and selected proprietary drugs (often purchased with significant price discounts) and use of convenient, on-site pharmacies. This strategy of providing generous coverage for evidence-based medications is a radically different approach than anything being considered by Congress or the Bush Administration. All current proposals feature large premiums, co-payments, and even gaps in coverage, yet findings from MEDS suggest an alternative may exist. Medicare+Choice insurers who emulate the GHC approach may be able to offer a substantially better benefit for a much lower cost.