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News from UC Davis Health System

News from UC Davis Health System

NEWS | May 28, 2013

Health differences explain most geographic variation in Medicare costs

Study finds people are sicker in high-cost areas

(SACRAMENTO, Calif.)

Wide geographic variation in Medicare costs is largely explained by health differences across communities rather than inefficient care delivery, according to a study published online today in the SAGE journal Medical Care Research and Review.

Patrick Romano of the UC Davis Center for Healthcare Policy and Research Patrick Romano of the UC Davis Center for Healthcare Policy and Research

Previous research found that Medicare could reduce spending by as much as 30 percent without harming health if all providers adopted treatment patterns found in low-cost areas, but today’s study calls into question how well these analyses accounted for differences in Medicare beneficiaries’ health status.

James Reschovsky of the Center for Studying Health System Change, together with Jack Hadley of George Mason University and Patrick Romano of the UC Davis Center for Healthcare Policy and Research, examined multiple ways of adjusting for patient health. They found that a broader accounting of health status explained at least 75 percent to 85 percent of Medicare geographic cost differences between high- and low-cost areas.

“Geographic variation research has been used to argue that there is considerable waste and inefficiency in the delivery of health care. We do not question this conclusion, but caution that inefficiencies in American health care may not be nearly as strongly related to geography as the Dartmouth Atlas of Healthcare and others have suggested. ...Although data limitations may preclude ever developing the perfect casemix adjustment approach, our results suggest that the portion of the geographic variation that can be explained by patient health is much greater than previously estimated, leaving less of the geographic variation potentially attributable to inefficiency,” the article states.

Previous geographic variation research also often used average spending on beneficiaries in their final months of life to adjust for area differences in health and to define high- and low-cost areas — an approach that assumes people near death have roughly equal health status. The new study by Reschovsky and colleagues, however, found that the health status of beneficiaries near death varied considerably by number and types of conditions, and that these differences accounted for 84 percent of the health-care costs in the final year of life. This differed little — only two percentage points less — when the same casemix indicators were applied to the entire elderly Medicare population. Because the end-of-life spending approach fails to effectively account for differences in population health, it misclassifies many areas in terms of the costs for treating Medicare patients, the study found.

The study, “Geographic Variation in Fee-for-Service Medicare Beneficiaries’ Medical Costs Is Largely Explained by Disease Burden,” was based on an analysis of claims from 1.6 million Medicare beneficiaries in 60 representative communities and was funded by the Robert Wood Johnson Foundation through a grant from its Health Care Financing and Organization program. Reporters may obtain a copy by e-mailing Alwyn Cassil at acassil@hschange.org.

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to inform policymakers and contribute to better health-care policy. Based in Washington, D.C., the center is affiliated with Mathematica Policy Research. For information, visit http://www.hschange.com/

The UC Davis Center for Healthcare Policy and Research includes more than 100 researchers in disciplines ranging from economics to pediatrics who conduct research on health-care policy, delivery, quality and costs to improve public health. For information, visit http://www.ucdmc.ucdavis.edu/chpr/

Medical Care Research and Review is a peer-reviewed, bi-monthly journal containing critical reviews of literature on organizational structure, economics, and the financing of health- and medical-care systems. The journal also includes original empirical and theoretical research to enable policymakers to make informed decisions and identify health-care trends. More information is available at http://mcr.sagepub.com/