Prescription Drug Spending by Medicare Beneficiaries in Institutional and Residential Settings, 1998-2001


U.S. Department of Health and Human Services

Prescription Drug Spending by Medicare Beneficiaries in Institutional and Residential Settings, 1998-2001

Executive Summary

Linda Simoni-Wastila, PhD, Bruce Stuart, PhD, and Thomas Shaffer, MS

University of Maryland, Baltimore, Peter Lamy Center on Drug Therapy and Aging

June 2007

This report was prepared under contract #HHS-100-03-0025 between the U.S. Department of Health and Human Services (HHS), Office of Disability, Aging and Long-Term Care Policy (DALTCP) and the University of Maryland. For additional information about this subject, you can visit the DALTCP home page at or contact the office at HHS/ASPE/DALTCP, Room 424E, H.H. Humphrey Building, 200 Independence Avenue, S.W., Washington, D.C. 20201. The e-mail address is: webmaster.DALTCP@HHS.GOV. The Project Officer was Linda Bergofsky.

The opinions expressed herein are solely those of the authors and do not reflect the position or policy of any office of the Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services or any other government authority.

Although much attention has been paid to the potential implications of the Medicare Prescription Drug, Improvement, and Modernization Act of 2005 (MMA) on prescription drug utilization and expenditures for community-dwelling beneficiaries, less attention has been paid to how Part D will affect the nearly 2.7 million Medicare beneficiaries residing in nursing homes and other long-term care facilities (LTCFs). Indeed, little is known about prescription drug utilization patterns in long-term care patients -- especially individuals residing in assisted living facilities (ALFs). This study was funded by the Office of the Assistant Secretary of Planning and Evaluation in the Department of Health and Human Services. It was motivated by the need for further information on medication use and spending in LTCFs in order to provide insight into the implications of the MMA for beneficiaries residing in institutions. As well, the programming and statistical processes required to generate these estimates provide a firm foundation for further work in medication utilization and expenditures studies by developing, for the first time, a database with medication prices that will allow pertinent policy analyses.

The study has three specific aims:

  1. To prepare nationally-representative estimates of drug spending in LTCFs by year (1998-2001), facility type, and other relevant factors associated with recipient characteristics and types of drugs used.
  2. To compare drug use and spending for beneficiaries in LTCFs to those faced by beneficiaries living in communities.
  3. To examine medication use and spending by short-stay skilled nursing facility residents who transition into LTCFs.

For each of these aims, project investigators at the Peter Lamy Center on Drug Therapy and Aging at the University of Maryland Baltimore (UMB) School of Pharmacy produced a Policy Brief. These are titled:

  1. National Estimates of Prescription Drug Utilization and Expenditures in Long-Term Care Facilities [].

  2. A National Comparison of Prescription Drug Expenditures by Medicare Beneficiaries Living in the Community and Long-Term Care Facility Settings [].

  3. Drug Use and Spending for Medicare Beneficiaries During Part A Qualifying Skilled Nursing Facility Stays and Non-Qualifying Long-Term Care Facility Stays [].

Data and Methods

This study employed the 1998-2001 Medicare Current Beneficiary Survey (MCBS) Cost and Use files. Prescription drug information was obtained from data extracted from the Medication Administration Records on prescription drug use in LTCFs and collected by MCBS surveyors. This file, known as the Institutional Drug Administration, is collected at the time of the general MCBS survey and then prepared as an analytic file by the University of Maryland under contract to the Centers for Medicare and Medicaid Services (CMS). This file is not part of the general MCBS survey at this time. More information on the MCBS is available online at:

A fundamental component of this study was the application of an already existing programming algorithm to estimate prescription drug expenditures in LTCFs using the MCBS data.1 This algorithm created and used by CMS was originally implemented to estimate prescription drug expenditures by Medicare beneficiaries residing in the community. Information generated by the application of the algorithm provided CMS with useful information needed for its own resources and is used by the Office of the Actuary in projecting prescription drug spending by the Medicare population.

We operationalized key medication utilization and expenditures measures. Because there are substantial differences in the mechanisms of how drug administration data are collected for community compared to institutionalized Medicare beneficairies, our measures are limited to per year and per user per year measures when comparing across residential environments. All analyses, except where otherwise noted, utilize the weights provided in the MCBS to provide national estimates of drug utilization and expenditures. All analyses were conducted using SAS Version 9.

Key Findings

  • In 2001, more than 41 million Medicare beneficiaries spent more than $55 billion on prescription drugs. Of this amount, 9.9%, or $5.4 billion, was accounted for by the 2.7 million Medicare beneficiaries living in LTCFs.

  • Mean annual prescription drug expenditure by user is markedly higher in LTCF resident than in their community-dwelling peers ($2,077 per user versus $1,571 per user, respectively).

  • In the LTCF population, Medicaid is the dominant payor of prescription drugs. The under age 65 Social Security Disability Insurance (SSDI) Medicare population is growing as a proportion of Medicare beneficiaries and also constitute a driving force behind the number and types of prescription medication expenditures. In 2001 Medicare SSDI beneficiaries spent, on average, $828 more on prescription drugs than did their counterparts qualifying for Medicare on the basis of age.

  • Psychotherapeutic drugs were the most frequently prescribed and most expensive therapeutic drug class used by LTCF beneficiaries. Much of this use was driven by disabled individuals who were dually eligible for Medicare and Medicaid.

  • Mean annual growth in prescription drug spending across all LTCFs was 11.9% over the three year period, with the greatest growth noted in ALFs.

  • Total prescription drug expenditures in LTCFs are estimated to range from $7.8-$10.5 billion in 2005.

  • Total prescription spending for the Top 10 therapeutic classes in the United States accounted for $39.9 billion, or 72.8% of total prescription drug spending. Although the Top 10 classes varied by community versus institutional populations, the proportion of total spending is equivalent.

  • On average, SSDI-eligible individuals in the community used $2,444 worth of prescription drugs, compared to per user spending of $2,775 by SSDI-eligibles residing in facilities, a mean difference of $331 per year. Within LTCFs, there were higher per user payments for SSDI beneficiaries than their aged counterparts ($2,775 versus $1,962); in the community, SSDI-eligibles also spent on average nearly $1,000 more than their aged counterparts ($2,444 versus $1,418).


This project provides the first detailed and national estimates of prescription drug utilization and expenditures by Medicare beneficiaries residing in LTCFs. These estimates are useful and needed benchmarks for monitoring medication use and spending patterns, especially as the MMA’s prescription drug expansion enters its second year. Future work should focus on using more current data, including up to and past January 2006, and should employ multivariable methods to control for important covariates explaining variation in medication use and spending patterns.


  1. This effort was undertaken in cooperation with CMS.

The Full Report is also available from the DALTCP website ( or directly at