Fact of the Week: A 1 Percent Increase in Drug Prescriptions Can Reduce Spending on Other Medical Services by 0.2 Percent
Source: Congressional Budget Office (CBO),Offsetting Effects of Prescription Drug Use on Medicare’s Spending for Medical Services (Washington, DC: CBO, November 2012).
Commentary: A report from the Congressional Budget Office (CBO) from 2012 analyzed the role of prescription drug use in reducing spending on other medical services. The report offered updated analysis on Medicare’s spending projections. The report’s authors noted that past estimates of Medicare’s costs did not take account of offsetting effects, by which patients switch to using prescription drugs away from other medical procedures or surgeries. Such estimates were due to the a lack or shortage of data in the years shortly following the enactment of Medicare drug insurance (Part D). However, the report suggests that subsequent expansion of Medicare Part D’s assistance has led to more significant shifts in patient use of drugs vs other healthcare services.
While misuse of prescription drugs can certainly lead to complications that require other medical interventions, more often than not they help as an alternative to other medical procedures that may be costlier. Such costs do not just include the cost of the procedure or operation itself but also the lost time and/or wages associated with needing to go to a hospital, clinic, or other outpatient facility. Maintaining a prescribed drug regimen allows patients to avoid such costs. In analyzing several studies on healthcare costs, the report suggested that, on average, a 1 percent increase in prescriptions was associated with a 0.2 percent decrease in spending on other medical services. However, estimates from the studies the authors analyzed ranged from a decrease in other services of 0.1 percent to a decrease of 0.4 percent. While the report is from over a decade ago at this point, its findings are nonetheless relevant to current discussions on the Medicare program’s costs. If spending on prescription drugs can help offset some of the spending on other medical services, then there is potential need for revision in the estimates of the net costs of Medicare.