University of Maryland Baltimore

1. University 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 testthat 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 characteristics

13. Mean annual Rx spending (sd) in 2006 constant dollars

14. Marginal effects (elasticities) of generosity in models with dichotomous Rx gap variable statistical significance ***p<.01, **p<,05, *p<.10

15. Marginal effects for dichotomous Rx coverage gaps variable statistical significance ***p<.01, **p<,05, *p<.10

16. Marginal effects (elasticities) for continuity of prescription coverage variable 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