Geography of Medicare

1
Geography of Medicare

• By David M. Cutler and Louise Sheiner
• American Economic Review Vol. 89 No. 2
• 1999
• Cliff Gagnier

2
Research Questions

• In 1997, regional Medicare payments averaged
  5,182 with a stand deviation of 897
• What factors account for regional differences in
  Medicare spending?
• Are there regional inefficiencies that can be
  corrected by policy?

3
Three Theories

• 1 Spending variation is due to regional
  differences in illness
• 2 Spending variation is due to differences in
  demand factors, ex. demographic factors,
  insurance coverage
• 3 Spending variation is due to the structure of
  medical care markets, ex. generalists vs.
  specialists

4
Data Source

• 1998 Dartmouth Atlas of Health Care
• Contains information on Medicare spending for 212
  hospital referral regions (HRRs)
• Authors use HHRs for the data values of
  metropolitan statistical areas (MSAs)
• The authors state that HHRs are closely aligned
  with MSAs

5
Method

• Correlation of Medicare spending across MSAs
• Authors compared spending within MSAs overtime
• 15 year and 25 year time periods

6
Results

• After 15 years, correlation 70
• After 25 years, correlation 40
• Therefore Illness does not vary greatly by region
  over time

7
Method

• Explaining Medicare spending across areas
• Variables implied in the three theories were
  gradually introduced in order to measure their
  impact on the difference in regional Medicare
  spending
• The reduction in standard deviation was used as a
  measure of the set of variables relative impact

8
Method

• Variables (5 analysis categories)
• Each category includes the variables from the
  previous category
• 1. No adjustment (no variables)
• 2. Illness
• 3. Demographics
• 4. Insurance Supply
• 5. Medical care supply

9
Results

• No variables
• Standard deviation 869
• Illness
• Standard deviation 510
• Demographics
• Standard deviation 472
• Insurance Supply
• Standard deviation 436
• Medical care supply
• Standard deviation 390
• Remaining deviation due to the number of patients
  or the relative expense of care provided for the
  same illness

10
Policy Implications

• Total discharges correlate with spending (.77)
  greater than average cost per discharge (.46)
• Expensive regions hospitalize more often for the
  same illness than inexpensive regions
• 1/3 of Medicare spending comes in the last six
  months of life
• For-profit hospitals and a large percentage of
  specialists increase costs
• HMOs reduce cost
• How can we get a level of care that is necessary
  but not more or in other words maximize net
  social benefit?