Introduction

The pharmaceutical industry has produced wondrous scientific advances, but the progress has come at a cost. US prescription drug spending has increased faster in most recent years than other categories of health and now comprises roughly one-sixth of total health expenditures. Rising costs strain already stretched public budgets. Increasing patient out-of-pocket spending for deductibles and coinsurance has created financial difficulties for many individuals and their families, particularly among the sickest patients. The dueling trends of scientific breakthroughs and ever-rising spending present enduring challenges. On its own, rising spending would not be so concerning, but evidence suggests that drug prices often do not reflect the benefits they provide. Thus, there is an imperative to measure the value of prescription drugs and incorporate such measures into drug pricing policies.

Prescription Drug Priorities under the Biden Administration

In January 2021, the incoming Biden administration will inherit urgent priorities to curb health care spending and expand health care coverage to millions of Americans while also addressing the COVID-19 pandemic and resulting economic downturn. Among these competing priorities is the issue of access to and affordability of prescription drugs. Here, we outline Biden’s plan to directly lower prescription drug spending for payers and patients and to expand access to prescription medications through improved health insurance coverage. These policies could provide important financial protections for Americans against high prescription drug prices. Despite widespread public support for addressing prescription drug prices, many of Biden’s plans rely on Congressional action, which will be complicated by the narrow majority held by Democrats in the House and an evenly divided Senate. However, there may be other opportunities to reduce prescription drug spending and improve health insurance enrollment among the uninsured. While directly lowering drug prices would provide the most widespread savings for payers and patients alike, any successful effort to increase the number of Americans enrolled in health insurance or render it more affordable will still likely effectively lower patients’ out-of-pocket costs and improve access to prescription drugs.

Association between physician adoption of a new oral anti-diabetic medication and Medicare and Medicaid drug spending

Background In the United States, there is well-documented regional variation in prescription drug spending. However, the specific role of physician adoption of brand name drugs on the variation in patient-level prescription drug spending is still being investigated across a multitude of drug classes. Our study aims to add to the literature by determining the association between physician adoption of a first-in-class anti-diabetic (AD) drug, sitagliptin, and AD drug spending in the Medicare and Medicaid populations in Pennsylvania. Methods We obtained physician-level data from QuintilesIMS Xponent™ database for Pennsylvania and constructed county-level measures of time to adoption and share of physicians adopting sitagliptin in its first year post-introduction. We additionally measured total AD drug spending for all Medicare fee-for-service and Part D enrollees (N = 125,264) and all Medicaid (N = 50,836) enrollees with type II diabetes in Pennsylvania for 2011. Finite mixture model regression, adjusting for patient socio-demographic/clinical characteristics, was used to examine the association between physician adoption of sitagliptin and AD drug spending. Results Physician adoption of sitagliptin varied from 44 to 99% across the state’s 67 counties. Average per capita AD spending was $1340 (SD $1764) in Medicare and $1291 (SD $1881) in Medicaid. A 10% increase in the share of physicians adopting sitagliptin in a county was associated with a 3.5% (95% CI: 2.0–4.9) and 5.3% (95% CI: 0.3–10.3) increase in drug spending for the Medicare and Medicaid populations, respectively. Conclusions In a medication market with many choices, county-level adoption of sitagliptin was positively associated with AD spending in Medicare and Medicaid, two programs with different approaches to formulary management.

Externalities and Benefit Design in Health Insurance

Insurance benefit design has important implications for consumer welfare. In this article, we model insurer behaviour in the Medicare prescription drug coverage market and show that strategic private insurer incentives impose a fiscal externality on the traditional Medicare program. We document that plans covering medical expenses have more generous drug coverage than plans that are only responsible for prescription drug spending, which translates into higher drug utilization by enrolees. The effect is driven by drugs that reduce medical expenditure and treat chronic conditions. Our equilibrium model of benefit design endogenizes plan characteristics and accounts for asymmetric information; the model estimates confirm that differential incentives to internalize medical care offsets can explain disparities across plans. Counterfactuals show that strategic insurer incentives are as important as asymmetric information in determining benefit design.