Medicaid/Medicare Medicare Medicare Part D

Donuts and drugs

Medicare patients are likely to discontinue their medication in December. Why? Are they busy with the Christmas holidays? Do they have additional expenses for gifts and limited funds for prescription drugs? Perhaps.

Another idea advanced by Kaplan and Zhang (2014) is that Medicare’s benefit structure encourages discontinuation. Why is that? Medicare’s Part D drug plan has an odd design where patients have a deductible for the first few hundred dollars of prescription drug, then Medicare pays 75% of cost for the next few thousand, then the beneficiary again bears 100% of the cost in the so-called donut hole until patients reach catastrophic coverage (over $5,726 in drug cots in 2008) where Medicare pays 95% of the cost.

Thus, if patients are in the donut hole, it makes sense for them to wait until January for their prescription in order to avoid having to pay 100% of the cost.

This is exactly what Kaplan and Zhang find. They use data from CMS’s Chonic Condition Warehouse (CCW) and examine patients with a myocardial infarction who have had an inpatient hospitalization in the previous year.   The compare low-income subsidy beneficiaries (non-LIS) to those beneficiaries who are eligible for a low-income subsidy (LIS). Medicare LIS beneficiaries do not pay any copayment for medications and thus are not subject to the donut hole. Non-LIS patients, however, are subject to these copayment discontinuities.

Using this approach the authors find the following:

Overall, we find that individuals who ordinarily would have reinitiated medications at the end of the year have a tendency to wait until the reset of benefits at the beginning of the year. Despite the cause, this delayed effect on medication resumption might increase the chance of uncontrolled symptoms and hospital readmission.

Post-script: Note that the donut hole is being phased out.

Beginning in 2011, drug manufacturers began providing a 50% discount on brand name medications filled in the doughnut hole. Between 2011 and 2020, Medicare will provide subsidies that progressively increase each year until they reach 75% for generic drugs and 25% for brand name drugs, so that by 2020, beneficiaries will be responsible for just 25% of the cost of all medications in the doughnut hole, which is equivalent to what they pay in the initial coverage phase. Thus, by 2020, the doughnut hole will no longer exist.



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