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VOLUME 49 | NUMBER 3 | JUNE 2014


Nonlinear Pricing in Drug Benefits and Medication Use: The Case of Statin Compliance in Medicare Part D

Keywords: Nonlinear pricing; statin compliance; Medicare part D.

Objective: To examine how enrollees' statin compliance responds to expected prices in Medicare Part D, which features a nonlinear price schedule due to a coverage gap.

Data Sources/Study Setting: Prescription Drug Event data for a 5 percent random sample of Medicare Advantage Prescription Drug Plan enrollees in 2008 who did not receive a low-income subsidy.

Study Design: We analyze statin compliance prior to the coverage gap, where the “effective price” is higher than the actual copayment for drugs because consumers anticipate that more spending will make them more likely to reach the gap. We construct each enrollee's effective price as her expected price at the end of the year, which is the weighted average between pre-gap and in-gap copayments with the weight being the predicted probability of hitting the gap. Compliance is defined as at least 80 percent of days covered.

Principal Findings: Part D enrollees' pre-gap statin compliance decreases by 3.7–4.7 percentage points for a $10 increase in the effective price.

Conclusion: The presence of a coverage gap decreases statin compliance prior to the gap, suggesting that incorporating expected future prices is important to assess the full impact of cost sharing on drug compliance under nonlinear price schedules.

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