APPENDIX A

ISSUES IN PRESCRIPTION DRUG COVERAGE, PRICING, UTILIZATION, AND SPENDING:
What We Know and Need to Know

1. Introduction

This report summarizes the findings from an intensive review of the literature addressing important policy issues in prescription drug coverage, pricing, utilization, and spending. The review had three primary aims:

• To assess the current literature concerning prescription drug costs and trends for Medicare beneficiaries with and without prescription coverage,
• To assess the recent literature on international prices and spending for prescription drugs, and
• To summarize the findings of these reviews from the perspective of what is known and what needs to be known in order to inform the policy debate regarding a Medicare drug benefit.

The study employed a detailed literature search strategy designed to assure that all important research findings relating to the study aims were captured. This strategy involved: (1) traditional index searches of literature in the medical sciences, social and behavioral sciences, economics, health services research, and public policy arenas, (2) searches for relevant statistical data in domestic and international documents, (3) identification and review of relevant ongoing research efforts funded by government agencies and private foundations, (4) identification of relevant working papers and presentations at professional associations based on ongoing and recently completed studies, and (5) a detailed web search with search terms keyed to the study aims. The search was restricted to materials published in the English language since 1995 except for seminal studies published prior to 1995, which are also included.

The report is divided into six sections. Following this introduction is a section that addresses key issues relating to drug costs for Medicare beneficiaries. Seven topic areas are covered in depth:

• Drug cost trends
• Drug prices faced by the elderly
• Sources and determinants of prescription coverage
• Dynamic patterns in prescription coverage
• Impact of prescription coverage on drug use and cost
• Out-of-pocket prescription drug spending by Medicare beneficiaries
• What we know and need to know

The next two sections provide background and context for the Medicare drug benefit debate. Section 3 provides an overview of the market for prescription drugs in the United States including a description of the drug distribution chain and methods for measuring drug prices. Section 4 describes international drug prices and spending. The primary focus of this section is on what can be learned from the international experience particularly in the area of drug price controls. Section 5 is a bibliography of all studies examined in the course of the literature review. Section 6 contains of abstracts of studies considered to be of particular value.