Sources of Regional Variation in Medicare Part D Drug Spending

Published In: The New England Journal of Medicine, v. 366, no. 6, Feb. 2012, p. 530-538

Posted on RAND.org on February 01, 2012

by Julie M Donohue, Nancy E Morden, Walid F. Gellad, Julie P Bynum, Weiping Zhou, Joseph T Hanlon, Jonathan Skinner

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Research Question

  1. Why does spending for prescription drugs under Medicare Part D vary regionally?

Background: Sources of regional variation in spending for prescription drugs under Medicare Part D are poorly understood, and such variation may reflect differences in health status, use of effective treatments, or selection of branded drugs over lower-cost generics. Methods: We analyzed 2008 Medicare data for 4.7 million beneficiaries for prescription-drug use and expenditures overall and in three drug categories: angiotensin-converting-enzyme (ACE) inhibitors and angiotensin-receptor blockers (ARBs), 3-hydroxy-3-methylglutaryl coenzyme A (HMG-CoA) reductase inhibitors (statins), and selective serotonin-reuptake inhibitors (SSRIs) and serotonin-norepinephrine reuptake inhibitors (SNRIs). Differences in per capita expenditures across hospital-referral regions (HRRs) were decomposed into annual prescription volume and cost per prescription. The ratio of prescriptions filled as branded drugs to all prescriptions filled was calculated. We adjusted all measures for demographic, socioeconomic, and health-status differences. Results: Mean adjusted per capita pharmaceutical spending ranged from $2,413 in the lowest to $3,008 in the highest quintile of HRRs. Most (75.9%) of that difference was attributable to the cost per prescription ($53 vs. $63). Regional differences in cost per prescription explained 87.5% of expenditure variation for ACE inhibitors and ARBs and 56.3% for statins but only 36.1% for SSRIs and SNRIs. The ratio of branded-drug to total prescriptions, which correlated highly with cost per prescription, ranged across HRRs from 0.24 to 0.45 overall and from 0.24 to 0.55 for ACE inhibitors and ARBs, 0.29 to 0.60 for statins, and 0.15 to 0.51 for SSRIs and SNRIs. Conclusions: Regional variation in Medicare Part D spending results largely from differences in the cost of drugs selected rather than prescription volume. A reduction in branded-drug use in some regions through modification of Part D plan benefits might lower costs without reducing quality of care.

Key Findings

Costs or volume?

  • Regional variation in Medicare Part D spending results largely from differences in the cost of drugs selected rather than prescription volume.

Recommendations

Reduce branded-drug use

  • A reduction in branded-drug use in some regions through modification of Part D plan benefits might lower costs without reducing quality of care.

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