Hospital spending down after Medicare drug coverage

After Medicare began covering prescription drugs in 2006, spending on hospital and nursing home stays appears to have dropped for seniors who had limited prior coverage.

That's the conclusion of a new report that hints Medicare Part D may have saved money by making it easier for chronically ill elderly people to manage their conditions.

"It seems to have helped keep seniors out of the hospitals, which has helped reduce spending," said Dr. J. Michael McWilliams of Harvard Medical School in Boston. "It's highly suggestive that Part D improves the cost-effectiveness of the Medicare program."

Part D was created under 2003 legislation and put into effect in January 2006. Some critics have complained the program lacks funding, while others have worried it will fuel the national debt.

In the wake of Part D, research shows elderly people use more medication and follow their prescriptions more closely. But the impact on non-drug spending has been less clear, according to the new report, published in the Journal of the American Medical Association. So McWilliams and his colleagues tried to find that out by linking drug coverage data from a national survey to Medicare claims from 2004 to 2007.

Among 6,001 beneficiaries, 42 percent told interviewers they were almost or completely covered, while the rest said they had limited drug coverage. Before Part D, spending on non-drug medical care appeared to be slightly higher for seniors with limited coverage, but from 2006 it was lower.

According to the researchers' calculations, beneficiaries with limited prior coverage spent $306 less per quarter following Part D than they would have been expected to given their prior spending. While there is no ironclad proof that reduction was due to the expanded coverage, McWilliams said it appears likely. The precise savings, however, are less certain.

"These reductions in nondrug spending suggest Part D may not have cost Medicare as much as was initially thought," he told.

The drop was largely explained by less spending on hospital and nursing home services. According to McWilliams, that suggests seniors see fewer complications for chronic diseases like diabetes or high blood pressure when they are able to manage them with medications.

"One direct implication is that closing the donut hole in the Part D benefits might help keep seniors out of the hospital," he said, referring to the gap between typical benefits and catastrophic coverage.

According to data from the Medicare Trustees, 34.5 million Americans were enrolled in Part D plans last year, receiving an average of $1,789 in benefits.