Does prescription drug adherence reduce hospitalizations and costs? The case of diabetes

Purpose – To estimate the impact of diabetic drug adherence on hospitalizations, emergency room (ER) visits, and hospital costs. Methods – It is often difficult to measure the impact of drug adherence on hospitalizations since both adherence and hospitalizations may be correlated with unobservable patient severity. We control for such unobservables using propensity score methods and instrumental variables for adherence such as drug coinsurance levels and direct-to-consumer advertising. Findings – We find a significant bias due to unobservable severity in that patients with more severe health are more apt to comply with medications. Thus, the relationship between adherence and hospitalization will be underestimated if one does not control for unobservable severity. Overall, we find that increasing diabetic drug adherence from 50% to 100% reduces the hospitalization rate by 23.3% from 15% to 11.5%. ER visits reduce by 46.2% from 17.3% to 9.3%. Although such an increase in adherence increases diabetic drug spending by $776 a year per diabetic, the cost savings for averted hospitalizations and ER visits are $886 per diabetic, a cost offset of $1.14 per $1.00 spent on diabetic drugs. Originality – Most of the drug cost-offset literature focuses only on the impact of cost-sharing and drug spending on cost-offsets, making it impossible to back-out the empirical impact of actual drug adherence on cost-offsets. In this chapter, we estimate the direct impact of adherence on hospitalizations and costs.