Projected Part D cost growth means tough choices ahead for Medicare

Philip Betbeze, senior editor, finance , November 12, 2007

What's $32 billion among friends? What about $797 billion?

That's how much the federal government shelled out for the (still) new prescription drug benefit under Medicare in 2006, and how much it's expected to shell out in total by 2015, according to a recent study in the journal Health Affairs. The study is typically dry economic analysis, though well done, and attempts to get at whether the implementation of the senior drug benefit in 2003, perhaps the signature domestic effort of the Bush administration, is economically efficient.

Whether it's economically efficient or not is an important question, of course, because contrary to the way politicians seem to conduct the nation's business, we don't have an endless supply of revenue from which to draw to pay for such programs.

One area the program has been successful is that the new benefit reduced the average amount paid by seniors per day of drug therapy by 18.4 percent while increasing the elderly's prescription drug use by only 13 percent, which are encouraging numbers. But most of the elderly already had prescription drug coverage of one sort or another. And that's where the rubber meets the road, so to speak, because the program reduced the total amount seniors paid for drug therapy by only 5.6 percent.

This analysis is important most of all, of course, because legislators will most certainly have to raise taxes to pay for it in coming years. This snapshot of the researchers' data suggests that the program may be economically inefficient--but it does not prove that it is, they stress, because it doesn't take into account potential long-term health savings that could occur because seniors can afford to take necessary medications.

Despite a lot of impressive analysis, that question can't be answered for at least another year or two, because there is not enough data on the relative health outcomes (mortality and morbidity) of elderly and nonelderly Americans before and after the program began.

So what does the projected increase in Part D mean for healthcare providers-in other words, anyone other than drugmakers and payers? Tough to tell, but reading the tea leaves about future Medicare services reimbursement from a program that grows from $32 billion to $797 billion over 10 years means one thing to me: The provider market has many bitter pills to swallow on the horizon.

Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at

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