Congressional Budget Office V. Offsetting Effects of Prescription Drug Use on Medicare's Spending for Medical Services

Offsetting Effects of Prescription Drug Use on Medicare's Spending for Medical Services 1 (November 2012)

handle is hein.congrec/cbo10938 and id is 1 raw text is: NOVEMBER 2012
Offsetting Effects of Prescription
Drug Use on Medicare's Spending for
Medical Services

Summary
Prescription drugs affect people's health and their need
for medical services.' Therefore, policy changes that
influence Medicare beneficiaries' use of prescription
drugs, such as those altering the cost-sharing structure of
the Part D prescription drug benefit, probably affect fed-
eral spending on their medical services.2 After reviewing
recent research, the Congressional Budget Office (CBO)
estimates that a 1 percent increase in the number of pre-
scriptions filled by beneficiaries would cause Medicare's
spending on medical services to fall by roughly one-fifth
of 1 percent. That estimate, which applies only to policies
that directly affect the quantity of prescriptions filled,
represents a change in the agency's estimating methodol-
ogy, which until now has not incorporated such an effect.
Previously, when estimating the budgetary effects of legis-
lation regarding prescription drugs, CBO found insuffi-
cient evidence of an offsetting effect of prescription
drug use on spending for medical services. But recently,
more analysis has been published that demonstrates a link
between changes in prescription drug use and changes in
the use of and spending for medical services. This report
provides background information about that relation-
ship; reviews the literature on the size of the offset for the
Medicare population; and describes how CBO synthe-
sized the recent research. The report also provides an
1. For the purposes of this publication, medical services refers
to medical and surgical services other than self-administered
prescription drugs.
2. For a full description of the prescription drug benefit provided by
Medicare's Part D program, see Congressional Budget Office,
Spending Patterns for Prescription Drugs Under Mledicare Part D
(December 2011).

example of how CBO's change in methodology will affect
the agency's cost estimates for proposals that would
change prescription drug use by Medicare beneficiaries.
Background
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, according to one esti-
mate.3 More recently, the Part D benefit was expanded by
the Affordable Care Act-which, between 2011 and
2020, is gradually closing the gap in coverage in which
beneficiaries were responsible for all of the costs for
their prescription drugs.4 That change is expected to fur-
ther boost the use of prescription drugs. The design of
Medicare's prescription drug benefit continues to be
debated, as evidenced by recent proposals to change the
cost-sharing rules for low-income beneficiaries and to
repeal the gradual closure of the coverage gap.
A substantial body of evidence indicates that people
respond to changes in cost sharing by changing their
consumption of prescription drugs. From beneficiaries'
perspective, the price of a prescription drug is the portion
of the prescription's cost that they bear. The use of
3. Becky A. Briesacher and others, Medicare Part D and Changes in
Prescription Drug Use and Cost Burden, Medical Care, vol. 49,
no. 9 (2011), pp. 834-841.
4. That coverage gap (sometimes referred to as the doughnut hole)
existed between Medicare's initial coverage limit and its out-of-
pocket threshold. See Congressional Budget Office, Spending Pat-
tern for Prescription Drugs Under Medicare Part D.

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