Increased Use Of Prescription Drugs Reduces Medical Costs In Medicaid Populations

We used data on more than 1.5 million Medicaid enrollees to examine the impact of changes in prescription drug use on medical costs. For three distinct groups of enrollees, we estimated the effects of aggregate prescription drug use—and, more specifically, the use of medications to treat eight chronic noncommunicable diseases—on total nondrug, inpatient, outpatient, and other Medicaid spending. We found that a 1 percent increase in overall prescription drug use was associated with decreases in total nondrug Medicaid costs by 0.108 percent for blind or disabled adults, 0.167 percent for other adults, and 0.041 percent for children. Reductions in combined inpatient and outpatient spending from increased drug utilization in Medicaid were similar to an estimate for Medicare by the Congressional Budget Office. Moving forward, policy makers evaluating proposed changes that alter medication use among the nearly seventy million Medicaid recipients should consider the net effects on program spending to ensure that scarce federal and state health care dollars are allocated efficiently.