Association for Public Policy Analysis & Management

This paper estimates the effect of the Medicare Part D protected class policy on total drug utilization and spending for Medicare beneficiaries. When the Medicare Part D prescription drug benefit was implemented in 2006, six drug classes—anticonvulsants, antidepressants, antineoplastics, antipsychotics, antiretrovirals, and immunosuppressants—were designated “protected classes.” Private Part D insurance plans are required to cover “all or substantially all” approved drugs available in these classes. The protected class designation could serve as a wedge in the negotiations between insurers and pharmaceutical manufacturers and undermine the insurers’ abilities to control price and utilization for drugs in these six classes.

Following Abadie et al. (2010) I employ the Synthetic Control Method and 2001-2011 data from the Medical Expenditure Panel Survey (MEPS) to construct a valid pre-Part D counterfactual and observe the differences in outcomes for protected and unprotected classes. I find that protected status led to significant and consequential increases in overall spending for drugs consumed by Medicare beneficiaries, but I do not find a change in utilization for protected classes. These results are important for informing ongoing debates surrounding rising pharmaceutical prices and potential policy changes related to Medicare price negotiations and protected classes.