VOL. 7, NO. 11 THE AMERICAN JOURNAL OF MANAGED CARE 1093 . . . COSTS & REIMBURSEMENT . . . Effect of Prescription Benefit Changes on Medical Care Utilization in a Medicare HMO Population Rajesh Balkrishnan, PhD; Wesley G. Byerly, PharmD; Fabian T. Camacho, MS; Anshu Shrestha, BS; and Roger T. Anderson, PhD B ecause traditional Medicare does not include provisions for outpatient drug coverage, many Medicare managed care plans that cover pre- scription drugs are likely to be faced with the prospect of increased medication use by the elderly. Many managed care organizations, underestimating the potential benefit of prescription drug coverage in the long run (improvement in patient health out- comes with improved medication compliance), have opted to place restrictions on prescription drug cov- erage to curtail the high healthcare costs associated with the elderly enrollee. 1 A few studies 2-4 have indi- vidually examined the impact of cost-sharing strate- gies (such as copayment level changes and prescription expenditure caps) on changes in health- care service utilization in managed care plans with elderly enrollees (age ≥65 years). A study by Johnson et al 2 of 2 insured Medicare risk groups showed that small increases in drug copayments had no significant effect on exposure to or the cost of therapeutic drugs. However, large increases in copayments resulted in a significant reduction in exposure to drugs, which could have contributed to the observed decline in the health of the elderly. 2 A more recent study by Popovian and colleagues 3 focused on the effect of drug payment capitation on healthcare expenditures of Medicare enrollees and showed that patients with capitated pharmaceutical reimbursements were more likely to have increased pharmacy expenditures as well as increased nonprescription-related healthcare utiliza- tion and costs. The authors, based on the study find- Objective: To examine the impact of 2 cost-containment efforts in prescription benefits in successive years that includ- ed changes in copayment and coverage levels, expanded generic coverage, and brand name prescription drug limit-of- coverage in a Medicare health maintenance organization (HMO). The benefit changes included moving to a drug ben- efit with increased total coverage and higher copayments in the first year (1998) and to one with brand name limit-of-cov- erage and unlimited generic availability in the second year (1999). Study Design: A repeated-measures analytical design with enrollee follow-up before and after introduction of the 2 policies. Patients and Methods: A cohort of 2411 older adults con- tinuously enrolled in a Medicare HMO since 1998 was fol- lowed up for 1 year pre-post for healthcare service utilization and costs; 259 patients enrolled since 1997 were available to test the effects of the first policy change. Results: Bivariate and multivariate analyses found a signif- icant decrease of 27% in prescription costs, a 4% decrease in physician visits, and a 6% decrease in total costs associated with the change in prescription benefit in the second year (1999). The policy change in the first year (1998) resulted in a 29% increase in prescription costs and 38% increased total costs for the HMO. Conclusions: Introduction of a prescription benefit that included substantial brand name limit-of-coverage and gener- ic drug coverage expansion was associated with significantly reduced prescription costs. In addition, this change did not seem to increase nonprescription-related healthcare service use in the population. (Am J Manag Care 2001;7:1093-1100) From the Department of Public Health Sciences, Wake Forest University School of Medicine, Winston-Salem, NC. Address correspondence to: Rajesh Balkrishnan, PhD, Department of Public Health Sciences, Wake Forest University School of Medicine, Medical Center Boulevard, Winston-Salem, NC 27157. E-mail: rbalkris@wfubmc.edu. This study was funded by Wake Forest University. Presented in part as a poster at the International Society for Pharmacoeconomics and Outcomes Research Annual Meeting, Alexandria, VA, May 23, 2000.