1University of Maryland Baltimore

School of Pharmacy

Do Large Gaps in Prescription Coverage Matter Beyond the

Obvious Fact that they Reduce Generosity of Coverage?

Bruce Stuart,* Joseph Terza,** Lirong Zhao*

AcademyHealth annual meetings, Orlando 6/4/07*University of Maryland Baltimore, **University of Florida

2

Acknowledgement

The Authors wish to thank the Robert Wood Johnson Foundation for research support

3

Background

The “doughnut hole” in the standard Medicare Part D benefit design is controversial for 3 reasons

• It reduces the average value of the policy for medium-high spenders

• It impacts beneficiaries differentially• The large gap may have pernicious

effects in disrupting medication regimens

4

Background

Large literature supports assertion that less generous drug coverage reduces demand

Small literature on coverage gap effects Studies by Stuart et al. (2005), Simoni-

Wastila et al. (2007) Studies of M+C benefit caps

No study (that we are aware of) that examines independent effect of gaps controlling for generosity

5

Research questions

Do Medicare beneficiaries who experience benefit gaps in prescription coverage spend less on medications than those with continuous coverage holding generosity constant?

Does the relationship vary with gap duration?

Does relationship vary at different levels of drug spending?

6

Research strategy

Construct a test that captures essential elements of Medicare beneficiaries’ exposure to standard Part D design in 2006

Restrict to community-dwelling beneficiaries with some Medicare supplementation who spent >$250 per year on drugs measured in 2006 dollars

No Medicaid recipients No gaps longer than 5.3 months per year Annual average generosity of benefits (%

spending paid by 3rd party) >30%

7

Data

Medicare Current Beneficiary Surveys from 1997 – 2003

Desirable qualities of MCBS Can identify beneficiaries with gaps in

prescription coverage and gap duration Can also identify gaps and gap duration in

Medicare supplemental insurance Can compute average generosity of drug

coverage Less desirable qualities

No plan design information

8

Study samples

Base sample: N=27,802 person-years meet study inclusion/exclusion criteria

Subsamples (non-exclusive) Employer sponsored Rx coverage (n=17,697) Medicare HMO Rx coverage (n=6,231) Self-purchased Rx coverage (n=5,682)

9

Measures

Dependent variable: annual drug spending converted to 2006 constant dollars

Independent variables Generosity (% spending paid by 3rd party) Rx coverage gap (0/1) Continuity of Rx coverage (% year with coverage) Continuity of Medicare supplement (% year with

coverage) Covariates: age, sex, race, income, education,

residence, health status, health care contacts, HCC risk adjuster, death, year dummies

10

Statistical analysis

Regression models predicting drug spending for base sample and subsamples All person-years Person years with spending $250-$2,250 Person years with spending >$2,250

Model specification (GLM with Gamma and log link using robust command in Stata) Models with Rx gap (0/1) variable to test

disruption hypothesis Models with continuity-of-Rx-coverage variable to

test duration of gap hypothesis

11

Statistical issues

Ex-post measure of generosity is endogenous

Gap variables may or may not be endogenous depending on (unobserved) causal factors generating gaps

Prior research indicates that HCC risk adjuster controls for Rx plan selection in studies using MCBS data Stuart et al., 2005, Stuart et al., 2006, Stuart et

al, 2007

12

Sample

Continuous coverage Coverage gaps

% of sample

Mean generosity

% of sample

Mean generosity

Base Sample

90% 73% 10% 65%

ESI 92% 76% 8% 70%

MHMO 90% 68% 10% 61%

Self-purchased

85% 67% 15% 60%

Sample characteristics

13

Sample

Continuous coverage Coverage gaps

% of sample

Mean Rx spend

% of sample

Mean Rx spend

Base Sample

90% $2,155

( 2,309)

10% $1,817

( 2,053)

ESI 92% $2,332

( 2,474)

8% $1,904

( 2,357)

MHMO 90% $1,610

(2,051 )

10% $1,362

( 1,359)

Self-purchased

85% $2,025

( 2,132)

15% $1,765

(1,537 )

Mean annual Rx spending (sd) in 2006 constant dollars

14

Marginal effects (elasticities) of generosity in models with dichotomous Rx gap variable

Sample Spending $250 - $2,250

Spending > $2,250

Base Sample 5.3***(0.34)

30.4***(0.56)

ESI 7.1***(0.46)

31.7***(0.59)

MHMO 5.2***(0.34)

29.9***(0.57)

Self-purchased 2.8***(0.16)

25.3***(0.43)

statistical significance ***p<.01, **p<,05, *p<.10

15

Marginal effects for dichotomous Rx coverage gaps variable

SampleSpending

$250 - $2,250Spending

> $2,250

Base Sample -30.6** 1.4 (ns)

ESI -67.1*** 10.0 (ns)

MHMO 12.2 (ns) -267.3 (ns)

Self-purchased -23.0(ns) -156.8 (ns)

statistical significance ***p<.01, **p<,05, *p<.10

16

Marginal effects (elasticities) for continuity of prescription coverage variable

SampleSpending

$250 - $2,250Spending

> $2,250

Base Sample 1.1***(0.10)

-3.1 (ns)

ESI 1.9***(0.16)

-4.6 (ns)

MHMO 0.4 (ns) 5.4 (ns)

Self-purchased 0.8 (ns) 1.1 (ns)

statistical significance ***p<.01, **p<,05, *p<.10

17

Discussion

Study confirms previous research showing that generosity of coverage is a significant driver of drug spending

Mixed support for idea that Rx coverage gaps have independent impact on drug spending

Small gap effects found in base sample and ESI sample for those with spending between $250 and $2,250

No evidence that Rx coverage gap reduces spending among those spending >$2,250

18

Study limitations

Ex-post measure of generosity is clearly endogenous but difficult to instrument (direction of potential bias also unclear)

Endogeneity in gap variables is likely to bias results to the null (assuming that beneficiaries who chose—or fail to avoid—gaps have less need for medications)

Control for gaps in underlying Medicare supplementation reduces likelihood of bias

19

Conclusions

Findings are suggestive but not definitive regarding impact of the Part D doughnut hole on beneficiary spending over the year

They do suggest that the debate over the doughnut hole should distinguish generosity-reducing effects from gap-specific dislocations in medication regimens