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Placing Limits on Medicare Prescription Drug Benefits May Lower Spending on Medications but May Also Raise Other Health Costs

Medicare + Choice

Oakland, Calif. Wednesday, May 31, 2006 – In a study that looked at Medicare + Choice (a program that preceded Medicare Advantage and Part D coverage) researchers concluded that a cap on drug benefits for Medicare patients reduced spending on, and consumption of, prescription drugs and was associated with unfavorable clinical outcomes. The authors also found that capped drug coverage failed to save money overall. These are the findings of a study in the June 1st, 2006 issue of the New England Journal of Medicine.

The study, by investigators with Kaiser Permanente’s Division of Research in Oakland, Calif., the University of California San Francisco and Harvard University, followed more than 157,000 Medicare + Choice beneficiaries in 2003 who faced a $1,000 annual drug benefit cap and compared them to almost 42,000 people who had no cap on their drug benefits. While this study looked at a benefit design that has some of the same characteristics of the standard Medicare Part D benefit, Part D provides more comprehensive coverage, explained the researchers. Medicare Part D has an initial limit of $2250, not $1000. It also has important catastrophic coverage. And it provides very comprehensive coverage for those eligible for low income subsidies.

“We know from this study that placing an annual drug benefit cap of $1,000 on patients had a consistent, negative impact on their overall health” said John Hsu, MD, of Kaiser Permanente’s Division of Research, the lead investigator and author of the study. “While there were initial savings because of lower pharmacy costs, there were no overall savings due to increased medical spending on non-drug related medical costs.” Hsu explained that patients that faced the cap spent 31 percent less on medications over the course of a year, but had more emergency department visits and non-elective hospitalizations.

Many health insurance plans have limited drug benefits in an effort to control prescription drug costs. The hope is that a benefit limit will create an incentive for patients to use medications more judiciously. This study shows that reality is more complex, said Hsu.

“With any new benefit policy,” Hsu said “it is very important to monitor the medical and economic effects for patients and society. We need to understand the intended and unintended consequences of drug benefit policies before we can make informed decisions on how to improve the health care system.”

The researchers say the drug cap effects were particularly noticeable in people with chronic diseases such as high blood pressure, high cholesterol and diabetes. These patients often failed to take their medications as prescribed, particularly in the months after patients exceeded the cap, which resulted in poor control of their health problems. Limited drug benefits led to more emergency department visits, hospitalizations and deaths, according to the researchers. Higher costs for hospitalizations and emergency department visits offset the savings from drugs costs associated with the cap, they added.

“Finding affordable ways to pay for medications is a challenge in the United States,” said Hsu. “However, the $1,000 drug benefit limit we looked at seems to be associated with poorer health outcomes without saving money overall.”

Hsu points out that this study looks at a specific patient population, in a specific health plan, in 2003. That plan is no longer offered at Kaiser Permanente. Hsu also explained that the new Medicare Part D plan is an attempt to address some of the problems encountered in programs that place a strict cap on prescription drug benefits. Under Medicare Part D the coverage limits are higher than the $1,000 limit looked at in this study. In addition Part D includes catastrophic coverage for people with very high medication expenses, and comprehensive coverage for people with the lowest incomes.

Funding for the study came from the Agency for Healthcare Research and Quality, the National Institute on Aging, and the Alfred P. Sloan Foundation. The research team includes John Hsu, MD, MBA, MSCE, Mary Price, MA, Jie Huang, PhD, Vicki Fung, Bruce Fireman, MA, and Joseph V. Selby, MD, MPH from the Division of Research; Rita Hui, PharmD from the Kaiser Pharmacy Outcomes Research Group; Richard Brand, PhD from the University of California San Francisco; and Joseph P. Newhouse, PhD from the Harvard Medical School, Harvard School of Public Health, and the Kennedy School of Government

The Kaiser Permanente Division of Research conducts, publishes, and disseminates epidemiologic and health services research to improve the health and medical care of Kaiser Permanente members and the society at large. It seeks to understand the determinants of illness and well being and to improve the quality and cost-effectiveness of health care. Currently, DOR’s 400-plus staff is working on more than 250 epidemiological and health services research projects.

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