Research / BFI Working PaperJan 18, 2023

Rationing Medicine Through Bureaucracy: Authorization Restrictions in Medicare

Zarek Brot-Goldberg, Samantha Burn, Timothy Layton, Boris Vabson

High administrative costs in U.S. health care have provoked concern among policymakers over potential waste, but many of these costs are generated by managed care policies that trade off bureaucratic costs against reductions in moral hazard. We study this trade-off for prior authorization restriction policies in Medicare Part D, where low-income beneficiaries are randomly assigned to default plans. Beneficiaries who face restrictions on a drug reduce their use of it by 26.8%. Approximately half of marginal beneficiaries are diverted to another related drug, while the other half are diverted to no drug. These policies generated net financial savings, reducing drug spending by $96 per beneficiary-year (3.6% of drug spending), while only generating approximately $10 in paperwork costs. Revealed preference approaches suggest that the cost savings likely exceed beneficiaries’ willingness to pay for foregone drugs.

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BFI Working Paper Jan 11, 2021

The Behavioral Foundations of Default Effects: Theory and Evidence from Medicare Part D

Zarek Brot-Goldberg, Timothy Layton, Boris Vabson, Adelina Yanyue Wang
Topics:  Health care