Are Drugs Substitutes or Complements for Intensive (and Expensive) Medical Treatment

Little is known about the relationship between variation in drug and non-drug medical treatment and how areas may substitute one type of care for the other. Using pharmacy and medical claims data for Medicare beneficiaries, we examine whether areas with more drug use have lower non-drug medical costs and how the quality of prescribing and primary care are associated with medical costs. We find that areas with higher drug spending do not have lower non-drug medical spending; however, poorer-quality prescribing and primary care are associated with higher medical spending in general and inpatient spending in particular.