Volume 24, Issue 1

Medicare Part D has significantly enhanced access to prescription drugs among Medicare beneficiaries. However, the recent rapid rise of utilization management policies in the Medicare Part D program may have adversely affected access to prescription drugs. I study the effects of expected and observed exposure to utilization management in prescription drug utilization using Medicare Part D claims data from 2009 to 2016 and an instrumental variables strategy based on the interaction of lagged health status and the set of plans available to each beneficiary. I find that the expected share of spending subject to utilization management increases the observed share, with the smallest effect for prior authorization. Increases in the expected share of drug spending subject to prior authorization increases Part D spending by $122.27 per percentage point, with almost three-quarters of this increase being paid by the Medicare program, rather than beneficiaries or plans. Comparable increases in step therapy and quantity limit exposure increase spending by $46 and decrease spending by $31, respectively. Interestingly, increased exposure to prior authorization and quantity limits increases the average price per 30-day prescription.

This study seeks to analyze the overall impact that biopharmaceutical innovation had on disability, Social Security recipiency, and the use of medical services of U.S. community residents during the period 1998–2015. We test the hypothesis that the probability of disability, Social Security recipiency, and medical care utilization associated with a medical condition is inversely related to the number of drug classes previously approved for that condition. We use data from the 1998–2015 waves of the Medical Expenditure Panel Survey and other sources to estimate probit models of an individual’s probability of disability, Social Security recipiency, and medical care utilization. The effect of biopharmaceutical innovation is identified by differences across over 200 medical conditions in the growth in the lagged number of drug classes ever approved. 18 years of previous biopharmaceutical innovation is estimated to have reduced: the number of people who were completely unable to work at a job, do housework, or go to school in 2015 by 4.5%; the number of people with cognitive limitations by 3.2%; the number of people receiving SSI in 2015 by 247 thousand (3.1%); and the number of people receiving Social Security by 984 thousand (2.0%). Previous innovation is also estimated to have caused reductions in home health visits (9.2%), inpatient events (5.7%), missed school days (5.1%), and outpatient events (4.1%). The estimated value in 2015 of some of the reductions in disability, Social Security recipiency, and use of medical care attributable to previous biopharmaceutical innovation ($115 billion) is fairly close to 2015 expenditure on drug classes that were first approved by the FDA during 1989–2006 ($127 billion). However, for a number of reasons, the costs are likely to be lower, and the benefits are likely to be larger, than these figures.