New Analysis Shows Wide Regional Variation in Medicare Costs

Medicare spending varies dramatically by region because individual physicians increase costs based on the quantity of medical services they provide in the area, according to an analysis published Thursday in the New England Journal of Medicine, the New York Times reports (Abelson, New York Times, 2/26).

For the analysis, Dartmouth Atlas Project researchers analyzed government Medicare data from 1992 to 2006 (Werner, AP/Houston Chronicle, 2/25).

Adjusting for inflation, the analysis found that Medicare spending in Miami rose 5% annually between 1992 and 2006, compared with 2.4% annually in San Francisco. The analysis also found that Medicare spent about $16,000 per beneficiary in Miami in 2006, compared with about $8,000 per beneficiary in San Francisco (New York Times, 2/26).

According to the AP/Houston Chronicle, the varying costs did not seem to be linked to climate or geography. In addition, people in more costly areas do not receive any better care, the AP/Chronicle reports (AP/Houston Chronicle, 2/25).

The researchers discovered that costs increased as physicians ordered more tests or admitted more patients to the hospital. Researchers also found that physicians were more inclined to take such measures in areas where there are more hospital beds and more high-tech imaging equipment (New York Times, 2/26).

Study co-author Elliot Fisher, head of the Center for Health Policy Research at the Dartmouth Institute for Health Policy and Clinical Practice, said, "If there's a local medical arms race, where each hospital system is trying to have transplant centers, cancer centers and neuro-radiology centers, you're probably looking at higher spending growth" (Landers, Dallas Morning News, 2/25).

Checking Growth

The analysis notes any attempts to control health care spending first must address how hospitals and physicians are rewarded because currently providers are paid based on the number of services they perform.

There presently are "no financial rewards for collaboration, coordination or conservative practice," according to the analysis (AP/Houston Chronicle, 2/25).

Mark McClellan, former CMS administrator and a health policy specialist at the Brookings Institution, said, "As long as Medicare pays for volume and intensity," doctors will continue to drive up costs.

Fisher and McClellan said a new payment method, in which physicians would be rewarded for providing higher quality care and receive a portion of the savings for preventing hospital visits or additional tests, is necessary to address rising costs (New York Times, 2/26).

David Goodman, a researcher at DIHPCP, said that spending less does not indicate a diminished quality of care but rather a greater reliance on primary care physicians and less on specialists and hospitals. The researchers determined that reducing the annual Medicare spending growth rate from the national average of 3.5% to 2.4% would reduce Medicare spending by $1.42 trillion by 2023 (Ruggles, Omaha World-Herald, 2/26).

The authors added that a projected $660 billion deficit in Medicare in 2023 could become a $760 billion surplus if physicians were more conservative with their treatments (Dallas Morning News, 2/25).

Uwe Reinhardt, a health care economist at Princeton University, said, "It is a virtual certainty within the next two years" that the Obama administration will address variations in spending as a means of controlling costs, perhaps by establishing regional limits on spending.