Differences in the costs of drugs prescribed lead to regional variation in Medicare Part D drug spending

Research Activities, September 2012, No. 385

Regional differences in Medicare Part D (prescription drug coverage) outlays for three classes of drugs reflect geographic variation in the use of brand-name and generic medications in each category rather than the volume of prescriptions. That's the finding of a new study. Researchers examined variation in costs of angiotensin-converting-enzyme inhibitors (ACEIs) and angiotensin-receptor blockers (ARBs), statins, and selective serotonin reuptake inhibitors (SSRIs) and serotonin–norepinephrine reuptake inhibitors (SNRIs), as well as overall spending for all drugs.

They found that differences in the mean adjusted cost for all drugs per beneficiary ranged from $2,413 in the lowest fifth of Medicare hospital referral regions (HRRs) to $3,008 in the highest fifth. Geographic variation in mean costs per prescription ($53 vs. $63) accounted for 76 percent of this difference. Regional differences in per prescription costs explained nearly 88 percent of the differences for ACEIs and ARBs and 56 percent of the differences for statins, but only 36 percent for SSRIs and SNRIs. The ratio of brand-name drugs to total prescriptions (ranging from 0.24 to 0.45 overall, 0.24 to 0.55 for ACEIs and ARBs, 0.29 to 0.60 for statins, and 0.15 to 0.51 for SSRIs and SNRIs) showed high correlation with prescription prices. If all HHRs in the four higher quintiles of drug cost had adopted the branded-to-total prescription ratios of the lowest quintile, the Medicare program and its beneficiaries would have saved $4.5 billion (10 percent of costs) for the year under study.

The researchers suggest that reducing branded-drug use in some regions through modification of Part D plan benefits might lower costs without reducing quality of care. Their findings were based on Medicare Part D prescription data for a 40 percent random sample of the 2008 Medicare Denominator files.

The study was funded in part by grants from the Agency for Healthcare Research and Quality (HS17695, HS18721, HS19421). More details are in "Sources of regional variation in Medicare Part D Drug Spending," by Julie M. Donohue, Ph.D., Nancy E. Morden, M.D., M.P.H., Walid F. Gellad, M.D., M.P.H., and others, in the February 9, 2012, New England Journal of Medicine 366(6), pp. 530-538.

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Current as of September 2012
Internet Citation: Differences in the costs of drugs prescribed lead to regional variation in Medicare Part D drug spending: Research Activities, September 2012, No. 385. September 2012. Agency for Healthcare Research and Quality, Rockville, MD. http://www.ahrq.gov/news/newsletters/research-activities/sept12/0912RA9.html