The Impact of the Medicare Modernization Act: An Empirical Analysis of Medicare Part D on Pharmaceutical Expenditures and Utilization

Abstract

This study examines the effect of the implementation of the Medicare Modernization Act (MMA) in 2006 on pharmaceutical expenditures and utilization. The study constructs two data samples from the Medical Expenditure Panel Survey (MEPS) to analyze prescription expenditures and usage across different insurance coverage groups and drug classes. The findings of this study suggest evidence that MMA resulted in an increase in expenditures, but led to a minimal change in pharmaceutical usage. This evidence shows that prescription drugs became more expensive over time relative to inflation. Further analysis on subsamples of different insurance coverages indicated that the implementation of MMA changed consumption behavior towards more expensive medicines. An analysis of the private insurance group revealed evidence suggesting the existence of “spillover effects” into private markets from the change to Medicare Part D, as evidenced by the cost-savings for those with private insurance. Additionally, this study shows the gravity of the six drug classes “protected” by Medicare Part D in terms of driving the increase in expenditure for the pharmaceuticals industry.