Working Paper: NBER ID: w30878
Authors: Zarek C. Brotgoldberg; Samantha Burn; Timothy Layton; Boris Vabson
Abstract: High administrative costs in U.S. health care have provoked concern among policymakers over potential waste, but many of these costs are generated by managed care policies that trade off bureaucratic costs against reductions in moral hazard. We study this trade-off for prior authorization restriction policies in Medicare Part D, where low-income beneficiaries are randomly assigned to default plans. Beneficiaries who face restrictions on a drug reduce their use of it by 26.8%. Approximately half of marginal beneficiaries are diverted to another related drug, while the other half are diverted to no drug. These policies generated net financial savings, reducing drug spending by $96 per beneficiary-year (3.6% of drug spending), while only generating approximately $10 in paperwork costs. Revealed preference approaches suggest that the cost savings likely exceed beneficiaries’ willingness to pay for foregone drugs.
Keywords: Medicare; Prior Authorization; Healthcare Costs; Drug Utilization; Bureaucracy
JEL Codes: H0; I1; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Prior authorization restrictions (I13) | Reduction in use of focal drugs (L42) |
| Prior authorization restrictions (I13) | Reduction in drug spending (H51) |
| Reduction in drug spending (H51) | Savings exceed administrative costs (D14) |
| Prior authorization restrictions (I13) | Administrative burden on physicians (I11) |