Assessing the Impact of Drug Use on Hospital Costs

Prescription drugs are one of the fastest components of rising health care expenditures leading to demands by payors and policy-makers that drug companies should demonstrate value for their products. Some studies have reported that new drug therapies result in cost savings or cost-effectiveness. This study assessed whether outpatient prescription drug utilization produced offsets in the cost of hospitalization for Medicare beneficiaries.

The researchers used data from the 1999 and 2000 Medicare Current Beneficiary Surveys to conduct the analysis. They examined diagnostic fields in the Medicare claim files for the initial 12 months to assess baseline medical conditions for each sample member. They then used the second 12 months to characterize beneficiaries’ use of prescription drugs and inpatient hospital expenditures. The files of more than 3,000 Medicare beneficiaries were analyzed for the study. The study found the effect of drug use on the probability of hospitalization was small and marginally significant, whereas the effect of use on spending once the patient was hospitalized was highly significant. This suggests that the primary source of hospital cost savings is through reduced need of intensive care services or reduced length of stay perhaps due to a less severe illness.