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Medicare Part D Benefits Tallied as Final 2006 Spending Data is Revealed

10 Jan 08

U.S. pharmaceutical spending and drug utilisation have increased partly due to Medicare Part D, full-year 2006 data confirms. Meanwhile, a statistical analysis of prescriptions puts a numerical value on drug utilisation increases and declines in out-of-pocket (OOP) spending related to the prescription benefit.

Global Insight Perspective
Significance	U.S. prescription drug spending increased by 8.5% year-on-year (y/y) in 2006, according to the newly available report from the Centers for Medicare and Medicaid Services (CMS). The launch of Part D is thought to be a key reason for the increase in pharmaceutical spending.
Implications	In a separate study published in the Annals of Internal Medicine, the Part D effect is calculated as a 5.9% increase in drug utilisation and a 13.1% decline in monthly OOP spending for those who joined Part D after the initial Part D penalty-free enrolment period,.
Outlook	Part D appears to have improved access to medications and affordability. While the programme has no doubt contributed to the increase in U.S. prescription drug spending in 2006, there are reasons to believe that its contribution to spending growth was highest in the first year and that its impact will moderate in future.

Medicare Effects Evident in 2006 CMS Data

As 2007 came to a close the CMS released its healthcare spending tally for the full-year 2006. Unsurprisingly, Medicare Part D—the prescription benefit programme launched at the start of 2006—had a big impact on spending indicators for the year.

As overall spending increased in line with previous years, healthcare spending as a proportion of GDP remained virtually stagnant (up by 0.1% y/y to 16% of GDP). Medicare spending experienced the largest increase in annual growth with 18.7%, as a result of the introduction of the new benefit. Prescription drug spending under Medicare totalled US$41 billion in 2006. Meanwhile, spending under Medicaid fell by 1% overall—marking the first decline in the programme's spending since its inception in 1965. The transfer of dual eligibles from Medicaid to Medicare Part D is responsible for the drop. Medicaid's share of retail prescription drug spending fell to 9% in 2006, down from 19% in 2005, prior to the launch of Part D. Meanwhile, Medicare's share of retail drug spending increased to 18% in 2006, up from 2% in 2005.

CMS Report for FY2006
Spending Indicator	2006 Spending in US$	Y/Y Change
Overall Health Spending	2.1 trillion	6.7
Per Capita Health Spend	7,026	n/a
Prescription Drug Spend	216.7 billion	8.5
Spending on Physician Services	447.6 billion	5.9%
Spending on Nursing Homes	124.9 billion	3.5%
Spending on Hospital Care	648 billion	7%
Spending on Home Healthcare	52.7 billion	9.9
Medicaid Spending	310.6 billion	-1%
Medicare Spending	401.3 billion	18.7%
Medicare Spending on Prescription Drugs	41 billion	--
Employer Healthcare Spending on Healthcare	496.8 billion	5.7
Consumer OOP Spending on Healthcare	n/a	3.8%
Source: Kaiser Family Network summary of CMS report; full CMS report was not available at the time of publication.

Separate Study Measures OOP Spend, Utilisation Impact of Part D

As CMS unveiled the final healthcare spending results for 2006, a separate report in the Annals of Internal Medicine attempted to measure the specific impact of Part D on Americans. The study compares the drug usage and OOP spending of Part D eligibles (aged 66-79) to a control group of 60-63 year-olds via prescriptions filled at one pharmacy chain in the September 2004-April 2007 period. The Part D group represents 5.1 million unique beneficiaries and 1.8 million unique control individuals. Sampling from individuals rather than sampling from prescriptions used in earlier Part D studies ensures that the final sample does not over-represent high users of medicines.

The study found that during the penalty-free Part D enrolment period (January-May 2006), average monthly utilisation of medicines increased by 1.1% and OOP spending declined by 8.8% for Part D enrolees. After the free-enrolment period (June 2006-April 2007), average monthly drug utilisation was 5.9% higher and OOP costs 13.1% lower for Part D enrolees, compared to the control group.

Outlook and Implications

The launch of Part D is no doubt partly responsible for an increase in drug utilisation. The second study period (that of stable enrolment after May 2006) is seen as more representative of the current trends, and shows a 5.9% increase in utilisation. At the same time, enrolees experienced a significant 13.1% decrease in OOP spending—suggesting that the federal government is shouldering a greater share of costs via Part D. However, there is no measure of generics usage in the total—which we expect to be substantially higher among both the Part D eligibles group and the control group than it was in 2005. The use of generics under both Part D and private plans is expected to increase further due to key patent expiries and the growing differential in co-payments for branded drugs and generics.

The CMS data for full-year 2006 indicates that while the source of funding has changed, actual prescription drug spending trends have largely remained the same. Medicare Part D's contribution to an increase in prescription drug spending appears to have been modest and largely attributable to the availability of lower discounts from manufacturers, in comparison to those available to Medicaid. For the most part, the 8.5% growth in U.S. prescription drug spending in 2006 is due to the use of new expensive medicines and biologics. Spending would have increased more had it not been for the increased availability of generics: the latter's share of prescriptions increased to 63% in 2006, up from 56% in 2005, according to CMS data.

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