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Myopic and Forward Looking Behavior in Branded Oral Anti‐Diabetic Medication Consumption: An Example from Medicare Part D

We evaluate consumption responses to the non-linear Medicare Part D prescription drug benefit. We compare propensity-matched older patients with diabetes and Part D Standard or low-income-subsidy (LIS) coverage. We evaluate monthly adherence to branded oral anti-diabetics, with high end-of-year donut hole prices (>$200) for Standard patients and consistent, low (≤$6) prices for LIS. As an additional control, we examine adherence to generic anti-diabetics, with relatively low, consistent prices for Standard patients. If Standard patients are forward looking, they will reduce branded adherence in January, and LIS-Standard differences will be constant through the year. Contrary to this expectation, branded adherence is lower for Standard patients in January and diverges from LIS as the coverage year progresses. Standard-LIS generic adherence differences are minimal. Our findings suggest that seniors with chronic conditions respond myopically to the nonlinear Part D benefit, reducing consumption in response to high deductible, initial coverage and gap prices. Thus, when the gap is fully phased out in 2020, cost-related nonadherence will likely remain in the face of higher spot prices for more costly branded medications. These results contribute to studies of Part D plan choice and medication adherence that suggest that seniors may not make optimal healthcare decisions. Copyright © 2016 John Wiley & Sons, Ltd.