Tradeoffs in the Design of Medicare Prescription Drug Coverage

Harvard Medical School, Boston MA

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Abstract

REVISED PROJECT SUMMARY/ABSTRACT Coverage for outpatient prescription drugs is pivotal for the health of older Americans, as novel treatments are increasing in number and effectiveness but also challenging to afford for both payors and patients. While the introduction of Medicare Part D in 2006 eased the financial burden of prescription drug costs for beneficiaries, the basic Part D design left Medicare beneficiaries exposed to coverage restrictions in the form of high out-of-pocket costs and administrative barriers such as prior authorization, step therapy, or formulary exclusions. Subsequent reforms have partially eased these restrictions using one of two approaches: “universal” expansions that improve coverage generosity for all beneficiaries and “targeted” expansions that aim to help beneficiaries with specific needs. The tradeoff between these two approaches is simple: universal expansions are expensive, while targeted expansions may leave patients out. To evaluate this tradeoff, it is necessary to know how different patient subgroups are affected by coverage restrictions. However, while we have a lot of evidence about the effects of cost-sharing and other barriers on the average Medicare beneficiary, we know far less about how these effects vary across subgroups. Factors such as a higher burden of chronic diseases, living in a rural area with limited access to providers, and low income can influence both the exposure to coverage restrictions and their effect on a patient’s medication use, health outcomes, and financial burden. Medicare should work for all Americans, but there is limited evidence on how best to accomplish this or where intervention is needed. In this project, we will study the evolution and implications of coverage restrictions across subgroups defined by (i) location in a rural zip code, (ii) chronic conditions, and (iii) lower income, and we will provide an analytical framework for evaluating the effects of past and future reforms aimed at easing these restrictions. Aim 1 will combine Medicare formulary and drug utilization data with census-tract level information and self-reported survey data on educational attainment from a sample of over 5 million survey respondents from the Consumer Assessment of Healthcare Providers and Systems (CAHPS) to document how exposure to Medicare drug coverage restrictions has evolved over time and identify the population subgroups most affected by these changes. In Aim 2, we will leverage natural experiments created by policy-driven variation in low-income subsidy (LIS) eligibility or yearly changes in formulary coverage to study the differential effect of coverage restrictions across patient subgroups. Finally, in Aim 3, we will build on the estimates obtained in Aims 1 and 2 to evaluate the impact of past reforms and simulate the effects of potential future policies. Throughout these analyses, we will focus on the tradeoffs associated with (i) universal (e.g., general benefit expansion) versus targeted (e.g., expanding LIS) benefit expansion and (ii) reforms that limit cost-sharing versus administrative barriers. Our study will provide a more comprehensive picture of the implications of changing Medicare’s approach to drug coverage across different groups of beneficiaries.