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Health Differences May Explain Medicare Spending Variation

Where a person lives seems to have an effect on Medicare spending. But why?
Where a person lives seems to have an effect on Medicare spending. But why?

The idea that uneven Medicare health care spending around the country is caused by wasteful practices and overtreatment — a concept that has influenced portions of the federal health law — took another hit in a study published Tuesday.

The analysis concludes that differing levels of health of people around the country explain between 75 percent and 85 percent of cost variations in Medicare. "People really are sicker in some parts of the country," said Dr. Patrick Romano, one of the authors.

That's a sour assessment for those hoping to wring large savings from the health care system by making it more efficient. Some, such as Peter Orszag, President Barack Obama's former budget director, assert that geographic variations in spending could mean that nearly a third of Medicare spending may be unnecessary.

Their views were based on wide differences in spending, which in 2011 ranged from an average of $14,085 per Medicare beneficiary in Miami to $5,563 per beneficiary in Honolulu.

The latest look at spending differences comes as an Institute of Medicine panel prepares a report on whether Congress should pay less to hospitals and doctors in areas where there is heavy use of medical services, and more in regions where spending is lower.

That report is due out this summer, but an interim report indicated that the panel was opposed to the idea, though it said there is much unexplained geographic variation between regions.

Medicare is already moving ahead with efforts to rein in high-spending hospitals and doctors, albeit not on a regional basis. As directed by the health law, the government in October 2014 intends to start penalizing hospitals whose patients cost Medicare the most. Medicare is also authorizing so-called accountable care organizations, partially inspired by Dartmouth's research, to create financial incentives for physicians to avoid extra tests and treatments.

The new paper is one of the sharpest attacks yet on the work of the Dartmouth Institute for Health Policy & Clinical Practice, whose three decades of research have popularized the theory that unexplained differences in spending among regions are the result of some physicians being more aggressive in diagnosis and treatment, in large part because it enriches them. The theory, popularized by a 2009 New Yorker article on high spending in McAllen, Texas, has divided health policy experts.

"The trouble with Dartmouth is they were trying to spin a simple story from a world which is far more complex and far more nuanced," said James Reschovsky, the lead author on the paper published in the journal Medical Care Research and Review.

Dartmouth economist Jonathan Skinner called the critical study "fatally flawed" in an email. He noted that the Institute of Medicine's preliminary report stated: "Although a non-trivial amount of geographic variation can be explained by specific demographic and, potentially, health status variables, a substantial amount of variation remains unexplained."

Copyright 2023 Kaiser Health News. To see more, visit Kaiser Health News.

Jordan Rau