Study: Medicare prescription plan saves program $12 billion a year

CHICAGO -- A new study suggests that Medicare's 5-year-old prescription drug plan is keeping seniors out of hospitals and nursing homes, saving the federal program an estimated $12 billion a year in those costs.

The savings only offset a portion of the $55 billion a year the government spends on Medicare Part D, as the drug plan is known. But the study's authors say it means seniors are staying healthier and enjoying a better quality of life.

"This is what people always hope for: If people get drug coverage, they won't need hospitalization," said Marsha Gold of the nonpartisan Mathematica Policy Research, who wasn't involved in the new study. "If it holds up, that's great news."

The Harvard analysis, appearing in today's Journal of the American Medical Association, found Medicare saved an average of about $1,200 a year for each senior citizen who had inadequate drug coverage before Medicare Part D. Most of the savings came from hospital and nursing home costs.

That translates to an annual savings of $12 billion, experts said.

With subsidized drug coverage, seniors can afford drugs that prevent trips to the emergency room by lowering cholesterol and blood pressure and controlling diabetes, said lead author Dr. Michael McWilliams of Harvard Medical School.

Other savings come from doctors no longer admitting patients to hospitals just so Medicare would pay for drug treatments -- like injectable clot-busting drugs for deep vein thrombosis -- that can be given more cheaply in a doctor's office, McWilliams said.

"Spending on one type of service can reduce spending on another type of service," McWilliams said.

"By expanding Medicare to include drug benefits, clearly we're spending more, but we're getting a lot of value out of that spending."

The findings suggest that lawmakers, while grappling with reducing the federal deficit, should consider all of Medicare's moving parts and how they affect each other, experts said.