NEJM: High drug costs lead to regional variation in expenditures

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Much variation exists in Medicare Part D drug spending, according to an article published Feb. 9 in the New England Journal of Medicine. Researchers found that modifying the management and utilization of Part D plans in high-cost regions could have saved nearly $4.5 billion and prescribing generic drugs rather than brand name drugs also could help knock down these high expenditures.

“There is considerable geographic variation in healthcare spending across the United States, and a recent study showed regional variation in prescription-drug spending for Medicare Part D enrollees,” according to background information from the article. “Knowledge of whether variation in Medicare drug spending arises principally from differences in volume or medication choice could inform interventions to improve the quality of prescribing for older adults and to reduce drug costs.”

Because it is still not understood why these regional variations of drug expenditures occur, Julie M. Donohue, PhD, of the University of Pittsburgh, and colleagues set out to test whether these variations are due to health status, treatments or brand name drug purchases. To do so, the researchers evaluated 2008 Medicare data for 4.7 million beneficiaries for prescription-drug use and expenditures for multiple drug categories. These categories were ACE inhibitors/ARBs, statins and serotonin-norepinephrine reuptake inhibitors (SNRIs).

Of the 4.7 million Medicare beneficiaries included, 94.1 percent filled one prescription and 70.3 percent used one of more drugs in the three categories studied: 47.8 percent were prescribed ACE inhibitors or ARBs, 44.7 percent used statins and 18.2 percent filled selective serotonin reuptake inhibitors (SSRIs) or SNRIs. These three categories alone accounted for 23 percent of total drug expenditures.

Medicare beneficiaries included in the study were assigned to one of 306 hospital-referral regions and the researchers evaluated four measures: per capita annual prescription-drug expenditures, per capita annual number of prescriptions filled, cost per prescription filled and ratio of branded-drug prescriptions to total prescriptions filled. The researchers calculated the range and 5th and 95th percentiles for each measure. 

Drug spending in the Part D population varied from $2,413 to $3,008 in the lowest and highest spending quartiles, respectively. After adjustment for socioeconomic characteristics, the variance was adjusted to $2,353 vs. $3,126, in the lowest and highest spending quartiles.

Donohue and colleagues attributed these variations to the cost of the prescriptions being filled, rather than the type of prescriptions. The researchers said 75.9 percent of the regional variation was explained by the cost per prescription. These differences were $53 vs. $63 in the lowest and highest spending quartiles, respectively, an 18.9 percent difference.

Costs per prescription for ACE inhibitors and ARBs also differed, with a 46.7 percent difference between spending quartiles.

“The share of prescriptions filled for brand-name drugs was strongly associated with (and showed variation that was similar to) the cost per prescription overall and in each drug category,” the authors wrote.

While prescribing generic prescriptions has been known to help reduce overall healthcare costs, 92.6 percent of ACE inhibitors and ARBs had no generic equivalents during the study period. In fact, the researchers estimated that Part D drug spending could have been 10 percent lower in 2008 if the study had been ranged by ratio of branded-drug to total prescriptions and the top four quartiles adopted the ratio in the lowest spending quartile.

“If this rate of savings had been applied to total Part D spending in 2008, the Medicare program and beneficiaries would have saved $4.5 billion,” the researchers wrote.

“The steep gradient in cost sharing between generic and branded drugs in Medicare means that a reduction in branded-drug use in high-spending regions would result not only in lower Medicare drug spending but also in lower out-of-pocket costs to beneficiaries,” the authors said.

While the authors noted that brand name drugs are filled with generics 88 percent of the time, most of the variation in brand name drugs stems from the fact that generics may not be available.

“An increase in the use of lower cost agents could substantially reduce Medicare program spending and out-of-pocket costs for beneficiaries without compromising the quality