Report on How to Reduce Regional Variation in Medicare Spending is Due this Summer

It has been well-documented that regional differences in Medicare spending persist. From 2007 to 2009 Medicare spent 1.43 times more on the average patient in geographic regions at the top 10th cost percentile than it did for patients in the 90th percentile. This was even after controlling for variations in wages and cost of living. Congress has asked the Institute of Medicine (IOM) to convene a committee to look into this issue and make policy recommendations. Dr Joseph Newhouse and Dr. Alan Garber, chair and vice-chair of that committee recently published an article describing their progress in the New England Journal of Medicine. After reviewing the literature, and commissioning studies of their own,  they have made some preliminary findings.

The Takeaway

1) Post-acute care, that is skilled nursing facilities, home health aids, rehabilitation facilities, long-term care and hospices accounted for most of the variation in spending. In Miami, Medicare reimbursements for post-acute care are over four times the national average, so far off the scale that it actually suggests fraud.

2) The second type of health service that varied significantly is hospital inpatient services, including physician reimbursements.

3) Spending on all other categories: prescription drugs, emergency care and ambulances, outpatient procedures, diagnostic testing varied only slightly.

4) Comparing spending rates at individual hospital service areas (HSAs) within the larger regional market showed  that there was considerable variation among hospitals in the same area.

5) When the committee looked at spending rates for different medical conditions within market areas, it also found little uniformity. Points four and five suggest that it is physician culture within specialties that dictates the aggressiveness of treatment within a region, not patient health status.

6) There was little correlation between regional spending and quality indicators.

The committee's actual policy recommendations will come out this summer.  From what they have learned so far, it looks like those recommendations will focus on trying to change individual provider behavior rather than region-wide activity.

TL:DR Medicare is going to have to clamp down on higher-than-average spending in post-acute care facilities and in-patient hospital services if they want to substantially control costs.

Read the article: Geographic Variation in Medicare Services (free)
By Joseph P. Newhouse, Ph.D., and Alan Garber, M.D., Ph.D.