The Effects of Prescription Drug Cost Sharing on Primary Care Utilization and Preventable Hospitalizations: Evidence from Medicare Part D

This study assesses the impact of reductions in cost sharing for prescription drugs on primary care utilization and preventable hospitalizations among the elderly in the United States. In addition to affecting demand for drugs, drug cost sharing can also affect the demand for complement services, such as primary or preventive care. In order to evaluate this possibility, I analyze the effects of varying patient cost sharing for prescription drugs on utilization of primary care, and on hospitalizations from ambulatory care sensitive conditions (ACSC), which can represent a failure of preventive and outpatient care. To address endogeneity from selection and sorting of individuals into insurance plans, I aggregate data from the 2000-2009 Medical Expenditure Panel Survey (MEPS) to the region-year level, and use instrumental variables. The analysis exploits exogenous variation in prescription drug cost sharing that occurred as a result of the implementation of Medicare Part D, and therefore plausibly identifies causal effects of cost sharing. Results show that for the elderly in the United States, who have generous insurance coverage for other outpatient services, reductions in prescription drug cost sharing have no significant effect on primary care utilization, or hospitalizations related to ambulatory care sensitive conditions.