Study Gives More Weight to Health Status in Regional Medicare Spending

Posted: May 17, 2010 at 1:02 am, Last Updated: May 17, 2010 at 1:12 pm

By Marjorie Musick

Jack Hadley, professor in the College of Health and Human Services. Creative Services photo

Researchers from Mason and the Urban Institute have determined that variations in Medicare beneficiaries’ health across geographic areas account for a significant share of Medicare costs.

The study of geographical differences in Medicare spending was published on May 12 in the New England Journal of Medicine.

“A substantial body of prior research has identified variation across geographic areas in how much Medicare spends per beneficiary — in the highest cost areas, Medicare spends about 50 percent more per beneficiary than in the lowest cost areas, even after adjusting for basic demographics such as age, gender and race, as well as differences in medical care practices,” says Jack Hadley, Mason professor in the College of Health and Human Services’ Department of Health Administration and Policy and senior author of the study.

The researchers analyzed data on 6,725 elderly Medicare patients collected from 2000 to 2002 by the Medicare Current Beneficiary Survey. They calculated the differences in Medicare spending between high- and low-cost geographic areas and examined the role of beneficiaries’ health in explaining these variations.

They measured health using an expanded set of criteria that included both pre-existing conditions and changes in health throughout the year, and also controlled for patients’ demographic characteristics, family income, supplemental insurance coverage and the amount of medical resources in the area.

“Geographic differences in Medicare spending are not necessarily evidence of inefficiency in health care. Our study shows that an individual’s health explains almost one-third of the difference in Medicare spending per beneficiary between the highest and lowest cost areas, while previous studies have assigned a smaller role to health measures,” says Stephen Zuckerman, a senior fellow in the Urban Institute’s Health Policy Center and the lead author of the study.

“Our findings indicate that the conventional wisdom about the magnitude of unexplained geographic differences in Medicare spending may be overstated and that policies based on these misperceptions may reward or penalize areas inappropriately.”

pills and medicine logoMean Medicare spending per beneficiary was 52 percent higher in geographic regions in the most expensive regions ($7,183 per beneficiary) than in the least expensive regions ($4,721 per beneficiary).

After adjusting for demographic and health characteristics and changes in health status, the difference in spending between the highest and lowest regions was reduced to 33 percent. Health status accounted for 29 percent of the geographic difference in per-beneficiary spending.

These results suggest that much of the observed geographic differences found in previous research were due to patients’ demographic characteristics and health status rather than to inefficiencies in health care treatment.

“Medicare spending was $484 billion in 2009. We all have a stake in providing medical care as efficiently as possible in order to free up resources for other pressing social and personal needs,” says Hadley.

“By suggesting that geographic differences in Medicare spending may not be the best indicators of where inefficiency lies, this study may help redirect the search for improved efficiency to studies of the comparative effectiveness of alternative treatments for specific diseases and conditions.”

Timothy Waidmann, a senior fellow at the Urban Institute, and Robert Berenson, an Institute Fellow at the Urban Institute, were co-investigators and co-authors of this study.

This study was supported by a grant from the Robert Wood Johnson Foundation’s Program on Health Care Financing and Organization to George Mason University.

The full findings can be viewed online.

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