Benefit Generosity, Specialty Drug Use, and Other Health Service Use in Medicare

DESCRIPTION (provided by applicant): Specialty drugs typically refer to high-cost biologic drugs used to treat serious and complex conditions. In many cases, they can offer life-extending or significant quality-of-life benefits to patients with conditions that have few alternative treatments. However, their prices are substantially higher than those of traditional pharmaceuticals, and their rapidly-rising costs are an important concern. Demand for specialty drugs is expected to increase dramatically as new drugs become available. Facing this alarming trend, payers and policy researchers are calling for urgent attention to develop strategies to effectively manage specialty drug use, recognizing that specialty drugs will be a major driver of future health care costs. Benefit design is commonly used to manage prescription drug utilization. Prior literature suggests that patient cost-sharing reduces prescription drug utilizaton. However, it is not clear whether similar approaches would be effective in managing specialty drug use because specialty drugs do not have generic substitutes or other therapeutic equivalents. Designing benefits for specialty drugs will involve tough choices because of the challenge of balancing patients' access with efforts to control health care costs. To address this challenge, it is essential to know how patients' use of specialty drugs responds to benefit generosity. Information on the value or effectiveness of specialty drug benefits is also needed. Yet, evidence on these issues is sparse. We propose to examine the impact of benefit generosity on the use of specialty drugs and other health care services among elderly Medicare beneficiaries. Using eight years of Medicare data from several files to which our research team has access, we will examine a comprehensive set of drug and other health service use measures, including (1) initiation of specialty drugs, (2) spending on specialty drugs, (3) hospita admissions, (4) outpatient facility use (e.g., outpatient surgery), (5) physician visits, (6) post-acute care use, (7) hospice service use, (8) total Part A/B costs, and (9) spending on Part B- covered drugs. Our proposed study leverages an exogenous change in the Part D benefit to identify the effect of cost-sharing on specialty drug and other health care use. This is a unique opportunity to address issues related to specialty drug use without encountering a possible endogeneity problem associated with specialty drug benefits. We will also assess how differences in specialty drug cost- sharing imposed by Part D plans affect specialty drug use. In this approach, we will use an instrumental variables (IV) method to address the potential endogeneity of specialty drug benefits. By examining the relations among drug benefit design, specialty drug use, and other health service utilization, our study will provide important information that could help guide policy discussions and explore benefit designs for specialty drugs.