Rx Minute: Implementation of Medicare Part D Followed by Significant Reductions in Nondrug Medical Spending

Implementation of Medicare Part D Followed by Significant Reductions in Nondrug Medical Spending

new study published in the Journal of the American Medical Association (JAMA) finds that implementation of the Medicare prescription drug plan in 2006 was followed by significant decreases in spending on nondrug medical expenditures among beneficiaries who previously had limited drug coverage. After Medicare Part D started, nondrug medical spending in this group was about $1,200 per year less than expected. The savings were driven principally by seniors making less use of hospitals and skilled nursing facilities. 
 
According to experts commenting on the JAMA study's findings, when extrapolated to all Medicare enrollees who were previously without or had limited drug coverage, the results indicate about $12 billion per year in offsetting savings from Part D. (Source)
 
The study used survey data and linked Medicare claims from before and after implementation of the Part D program for 6,000 participants. Participants were grouped by the generosity of their drug coverage prior to the Part D program and spending patterns were compared. The spending observations of the participants were also compared to those from a prior study measuring medical spending from 2002 to 2005. 
 
The findings demonstrated that total nondrug medical spending was reduced after the January 2006 implementation of Part D for beneficiaries with limited prior drug coverage relative to beneficiaries with generous prior drug coverage. By contrast, trajectories of nondrug medical spending for the two groups did not change relative to one another in the years before Part D began, indicating that Part D is likely responsible for the drop off in hospital and other nondrug expenditures use after it began. 
 
The authors of the study conclude that, "In concert with previous studies, these findings suggest that increased medication use and adherence achieved through expanded drug coverage for seniors have been associated with decreased spending for nondrug medical care." 
 
New Report Highlights Economic Contributions of the Biopharmaceutical Research Sector to the Nation 
 
According to a recent Battelle Technology Partnership Practice report, the U.S. biopharmaceutical sector "is well recognized as a dynamic and innovative business sector generating high quality jobs and powering economic output and exports for the U.S. economy." 
 
The report, released in July 2011, finds that the sector supported a total of 4 million American jobs in 2009. Each of the 674,192 direct jobs supported another 6 jobs across the economy for a total of 3.4 million indirect jobs. 
 
The report also illustrates how the biopharmaceutical sector stands out in its total economic impact. The total economic output from the sector's direct, indirect, and induced impacts was $918 billion, and the biopharmaceutical sector generated an estimated $85 billion in local, state, and federal tax revenues in 2009. Globally, the U.S. biopharmaceutical industry generates valuable foreign trade and income for the nation, with U.S. biopharmaceutical exports totaling more than $232 billion between 2005 and 2010. Over the same years exports increased by 60%. And due to the high level of specialized education and training required in the sector, its average employee wage of $118,690 is higher than across all other private sector industries. 
 
Because of high returns the sector contributes towards the U.S. economy, gains or losses in sector revenues have the potential to cascade across the economy. Battelle estimates that a $20 billion per year reduction in sector revenue would result in 260,000 job losses and reduce economic productivity by a substantial $60 billion. Battelle found that the sector has the ability to generate far higher impacts on the U.S. economy than would a similar amount of general consumer spending. 
 
The report concludes that promoting a ripe business environment for the biopharmaceutical sector will continue to pay significant dividends for the U.S. economy, well into the future. But forward-thinking policy proposals will be necessary, "For the U.S. to continue to benefit from a robust biopharmaceutical industry, companies must have a business and innovation environment that fosters and sustains continued R&D investment."

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