Prescription drugs often play an important role in keeping people healthy, especially for people with chronic conditions. Medicare beneficiaries with diabetes or asthma, for example, might take regular medicines to prevent emergencies that would put them in the hospital. Hospital stays, doctor’s appointments, and other medical services covered under Medicare Part A and Part B tend to be far more expensive than prescription drug therapy, so Medicare could save money if clinically appropriate prescription drug use were to increase.  That was one of the arguments made by the Bush Administration for the creation of the Medicare Part D outpatient drug benefit.

The Congressional Budget Office (CBO) did not take those potential savings into account when estimating the budgetary effects of legislation creating the Medicare Part D prescription drug benefit - the Medicare Modernization Act of 2003 (MMA).  They also did not score savings for Affordable Care Act (ACA) expanding federal spending on Part D.  When scoring MMA in 2003 and ACA in 2010, CBO did not think increased drug use had any significant impact on medical service use.

In a recent report and blog post, however, the CBO says it now estimates that Medicare will spend one-fifth of 1 percent less on medical services for each 1 percent increase in the number of prescriptions Medicare beneficiaries fill.

Change Lowers ACA Part D Spending Estimate:

The ACA health reform law gradually closes part of the gap in Part D coverage between the initial coverage limit and the point at which catastrophic coverage kicks in. Pharmaceutical companies will bear most of that cost in the form of government mandated discounts on brand name drugs.  The CBO expects the change – which affects only people who are not already exempt from the doughnut hole by enrollment in Medicaid or a low-income subsidy program – to increase annual prescription drug consumption for Medicare beneficiaries by 5 percent.

Originally, the CBO had projected the Part D provisions of Obamacare to increase Medicare spending by $86 billion from 2013 to 2022. After accounting for a decrease in medical services generated by increased access to medications, it now expects those provisions to increase Medicare spending by $51 billion.

Studies that Caused the CBO to Change its Methodology:

The CBO decided to change its approach after reviewing a series of studies. Among the studies were:

The CBO’s report has plenty of detail for anyone interested in how it analyzed those studies and came to its conclusion.

CBO’s new methodology gives support to advocates of improving patient access to prescription drugs and proponents (including myself) of value-based benefits that look beyond the mere unit cost of a specific drug or therapy.