Study: Medicare drug plan saves hospital costs

A new study suggests that Medicare's 5-year-old prescription drug plan is keeping seniors out of hospitals and nursing homes, saving the federal program an estimated $12 billion a year in those ...

A new study suggests that Medicare's 5-year-old prescription drug plan is keeping seniors out of hospitals and nursing homes, saving the federal program an estimated $12 billion a year in those costs.

The savings only offset a portion of the $55 billion a year the government spends on Medicare Part D, as the drug plan is known. But the study's authors say it means seniors are staying healthier and enjoying a better quality of life.

"This is what people always hope for: If people get drug coverage, they won't need hospitalization," said Marsha Gold of the nonpartisan Mathematica Policy Research, who wasn't involved in the new study. "If it holds up, that's great news."

The Harvard analysis, appearing in Wednesday's Journal of the American Medical Association, found Medicare saved an average of about $1,200 a year for each senior citizen who had inadequate drug coverage before Medicare Part D. Most of the savings came from hospital and nursing home costs.

That translates to an annual savings of $12 billion, experts said.

With subsidized drug coverage, seniors can afford drugs that prevent trips to the emergency room by lowering cholesterol and blood pressure and controlling diabetes, said lead author Dr. Michael McWilliams of Harvard Medical School.

Other savings come from doctors no longer admitting patients to hospitals just so Medicare would pay for drug treatments — like injectable clot-busting drugs for deep vein thrombosis — that can be given more cheaply in a doctor's office, McWilliams said.

"Spending on one type of service can reduce spending on another type of service," McWilliams said. "By expanding Medicare to include drug benefits, clearly we're spending more, but we're getting a lot of value out of that spending."

The findings suggest that lawmakers, while grappling with reducing the federal deficit, should consider all of Medicare's moving parts and how they affect each other, experts said.

"It's critical to think about the entire program. They can't just be thinking about how to pay hospitals differently," said Julie Donohue, a health policy researcher at the University of Pittsburgh, who wasn't involved in the new study. "They have to think about the whole delivery system and the whole Medicare system."

It's tough for researchers to pinpoint the effect of a policy change because they usually can't randomly assign people to participate in a program or not. Medicare Part D is voluntary. Enrollees pay premiums that cover about 25 percent of the cost. There were 23 million Part D beneficiaries last year.

For the new study, researchers analyzed nondrug Medicare spending for about 6,000 seniors from 2004 through 2007.

The Medicare drug benefit started in January 2006. Before then, about 2,500 of the seniors in the study reported having generous drug coverage, which many bought as supplemental insurance. About 3,500 reported having limited or no drug coverage.

By comparing spending trends before and after 2006, the researchers were able to calculate any nondrug savings.

Previous studies show Medicare Part D increased use of antibiotics and drugs for diabetes, high blood pressure, depression and other chronic conditions.

The nation's 1-year-old health care law is gradually closing the Medicare drug coverage gap, the "doughnut hole," which also should keep seniors out of hospitals, McWilliams said.

But another view on the doughnut hole came from Joseph Antos, a health policy expert at the conservative-leaning American Enterprise Institute. Antos said the doughnut hole "turned out to be a very good idea" because it encourages seniors to use cheaper generics instead of more expensive brand-name drugs.

"It's disastrous policy to whittle away at the doughnut hole," Antos said. "If we see generic usage drop, that means the program is going to cost more."


Carla K. Johnson can be reached at




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