Medicare and Prescription Drugs: Prospects for Reform

The debate over adding coverage for outpatient prescription drugs to Medicare has intensified in recent months. A Kaiser/Harvard School of Public Health survey found that this was one of the most closely followed health stories of 2000 (Kaiser Family Foundation [KFF], 2000c). In a postelection survey, 56 percent of voters supported adding partial prescription drug coverage to Medicare (KFF, 2001). In January 2001, President Bush released a prescription drug proposal, and a few days later, a group of progressive Democrats followed suit. PRESCRIPTION DRUGS AND OLDER ADULTS At the time of Medicare's enactment, prescription drugs did not play a significant a role in the care of older adults. "In the late 1960s comparatively few of the prescription drugs available had clinical significant effects on the chronic diseases that are prevalent among the elderly" (Steinberg et al., 2000, p. 199). Between 1968 and 1978 the percentage of Medicare beneficiaries' incomes going to prescription drugs actually fell (Medicare Payment Advisory Commission [MedPAC], 2000). In recent years, however, pharmaceuticals have played an increasingly important role in health care. Today, older adults "are far more likely to suffer from chronic conditions for which drug treatment are an important part of care, such as arthritis, diabetes, high blood pressure, heart disease, Parkinson's disease, and depression" (MedPAC, 2000, p. 4). In 1998 Medicare beneficiaries' spent 4.1 percent of their incomes on prescription drugs, up from around 1.9 percent in 1978 (MedPAC). Although older adults make up 13 percent of the population, they account for more than one-third of the nation's prescription drug expenditures (MedPAC). According to a recent estimate by the Congressional Budget Office, between 2002 and 2011, prescription drug spending for elderly people will total $1.5 trillion (Pear, 2001b). Prescription drug expenditures have increased dramatically in recent years. Between 1990 and 1998, overall spending on drugs more than doubled (KFF, 2000b). The Congressional Budget Office also projects that expenditures per Medicare beneficiary will triple (Pear, 2001b). What explains these spending increases? One factor has been increasing prices. Between 1991 and 1998 the average retail price of prescription drugs rose at an annual rate of 6.7 percent (compared with a general inflation rate of 2.6 percent a year) (KFF, 2000a). From 1999 to 2000 prices for half of the 50 drugs prescribed most often for older adults increased at double the rate of inflation; prices for one-half of these drugs grew at double the rate of inflation, and 15 increased at triple the rate (Families USA, 2000a). Increased prices accounted for 18 percent of the growth in prescription drug expenditures between 1993 and 1998 (KFF, 2000b). A second factor has been increased use. Between 1992 and 2000, the average number of prescriptions per older adult grew from 19.6 to 28.5 (Families USA, 2000a). Increasing use explains 43 percent of the growth in prescription drug expenditure (KFF, 2000b). A third factor has been the replacement of less-expensive drugs with more-expensive ones. This accounts for 39 percent of the growth in spending (KFF, 2000b). Unfortunately, it is not clear that the newer medications are superior to the ones they replaced. In 1990 David Pryor (DAR), chair of the Senate Special Committee on Aging, noted that many new medications failed "to live up ... to their manufacturers' claims of superior safety and efficacy" and had "little or no therapeutic advantage over already marketed drugs" (Pryor, 1990, p. 107). Data from the 1990s suggests that "half of industry research is aimed at developing me-too drugs (Goozner, 2000, p. 28). Advertising also influences the use of drugs and their replacement. Between 1995 and 1998, drug companies tripled their spending on direct advertising to consumers (KFF, 2000b). …