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Higher drug spending lowers other costs

Increased Medicaid drug spending is associated with lower costs in other sectors.

Medicaid expansion has dramatically increased the number of Americans with health insurance. However, many have raised concerns over the costs to federal, state, and local government. It is estimated that the 2013 Medicaid expansion cost a total of $449 billion. Given the sizable price tag, policymakers have proposed structural changes to Medicaid pharmaceutical benefits aimed at containing costs.

Source: Chris Potter (Flickr/CC/

Source: Chris Potter (Flickr/CC/

One recent study examined Medicaid claims data for 1.5 million enrollees from 11 states, over 3 years, and compared prescription drug costs to nondrug costs (inpatient costs, outpatient costs, and other Medicaid costs). The study found that for every 1% increase in medication costs, there was a decrease in total nondrug Medicaid costs of 0.1% in blind/disabled adults, 0.041% in children, and 0.167% for other adults.

The authors suggest that the results should give policymakers pause before restructuring medication benefits for Medicaid enrollees.

While, this study sought to determine the extent to which prescription medication spending was associated with reductions in non-medication spending for Medicaid beneficiaries, the overall analysis was problematic for several reasons.

First, it is difficult to interpret the practical meaning of the inverse relationship between drug and nondrug costs because only percentages (rather than actual dollar amounts) were presented. On their own, the percent-savings are not particularly impressive.

Second, there is a tenuous connection between filling a prescription and actual patient compliance with a medication regimen. Perhaps the argument could be made more convincing if the cost savings presented also correlated with improvement in clinical outcomes (e.g. mortality, HbA1C, or blood pressure levels).

However, to the extent that adherence to a prescription treatment regimen reduces non-medication spending, one possible issue not assessed would be the implementation of a cost-sharing program with patients. While there is some concern that , it remains unknown if the benefits of cost reduction (to the Medicaid program) outweigh the harms of non-adherence (for patients).

commentary by Sharmistha Dev


We used data on more than 1.5 million Medicaid enrollees to examine the impact of changes in prescription drug use on medical costs. For three distinct groups of enrollees, we estimated the effects of aggregate prescription drug use-and, more specifically, the use of medications to treat eight chronic noncommunicable diseases-on total nondrug, inpatient, outpatient, and other Medicaid spending. We found that a 1 percent increase in overall prescription drug use was associated with decreases in total nondrug Medicaid costs by 0.108 percent for blind or disabled adults, 0.167 percent for other adults, and 0.041 percent for children. Reductions in combined inpatient and outpatient spending from increased drug utilization in Medicaid were similar to an estimate for Medicare by the Congressional Budget Office. Moving forward, policy makers evaluating proposed changes that alter medication use among the nearly seventy million Medicaid recipients should consider the net effects on program spending to ensure that scarce federal and state health care dollars are allocated efficiently. PMID: 26355062 

Health Affairs. 2015; 34 (9): 1586-93.

Sharmistha Dev, MD, MPH
About Sharmistha Dev, MD, MPH

Sharmistha Dev is a clinical instructor at University of Michigan Department of Emergency Medicine and Department of Internal Medicine. She earned her Master of Public Health and medical degree from University of Illinois at Chicago. She tweets at @DrSDev. Contact: Facebook | Twitter | More Posts