Why so much variation?
Studies differ on causes of Medicare cost disparities
Medicare spends radically more in some places of the country than others. Intense debate over what’s behind that variation— and how to save money by narrowing it— erupted again last week with new research concluding that differences in patients’ health are primarily to blame.
That runs counter to longstanding work by researchers at the Dartmouth Institute for Health Policy and Clinical Practice. Instead of attributing regional cost differences to differences in patient health, Dartmouth researchers contend that oversupply of providers and technology, perverse financial incentives and differences in doctors’ approaches to medicine lead to unnecessary care at greater cost.
The Dartmouth work has been widely cited. Peter Orszag, who was director of the Office of Management and Budget as health reform took shape, described the research as “one of the best examples that we have of academic work informing the policy process” in an interview with the school’s Dartmouth Now. But it’s also been sharply criticized.
Powerful stakeholder interests will be affected by who turns out to be right—or who is believed. If inappropriate practice variation, inefficiency and waste—not health differences—are to blame, Congress could squeeze Medicare payments where spending is high and reward low-cost communities for better quality at a lower cost, said Peter Hussey, a senior health policy researcher with RAND Corp. Taxpayers in cheaper communities would no longer subsi- dize the waste of pricier spots, he said. But resistance to such a change could be powerful from lawmakers representing high-spending states. “It’s a very political question,” he said.
Still, as Congress grapples with rising healthcare costs and federal deficits, Medicare spending looms as an unavoidable target.
The spread between the least and most expensive locales is jarring. The new study, published in the journal Medical Care Research and Review, found Medicare spends $6,612 per person, on average, in the cheapest regions and $11,643 in the most costly, after accounting for the cost of living. At least three-quarters of that difference can be accounted for by health, according to the study.
One of the authors, James Reschovsky, a senior fellow at the Center for Studying Health System Change, said Dartmouth’s research fails to adequately account for how geographic differences in health influence spending.
Reschovsky, working with Jack Hadley, a health administration professor at George Mason University, and Dr. Patrick Romano, a professor of medicine and pediatrics at the University of California, Davis, analyzed Medicare spending and diagnoses during the final months of life, a period during which Dartmouth researchers contend all patients are equally sick.
But Reschovsky and colleagues found the gap between average Medicare cost in the least and most expensive areas narrowed to $3,333 from $20,514 once they factored in diagnoses, a roughly 84% difference.
Of course, diagnoses, taken from bills submitted to Medicare might be subjective or manipulated by physicians. To address that risk, researchers analyzed spending for diagnoses with no room for discretion, such as heart attacks or hip fractures. A final analysis also controlled for market forces such as competition.
Hussey noted, however, that diagnoses contained in Medicare bills are a relatively crude way to identify patients’ health status.
In a written response to Reschovsky’s new study, Dartmouth’s Jonathan Skinner, an economist and researcher on spending variation, argued that diagnoses from claims forms can be biased by doctors who overtreat patients. Skinner argued that the analysis by diagnoses did not sidestep those biases for diabetes, which can be subject to doctors’ discretion.
In an interview, Skinner also argued Dart- mouth has been unable to replicate findings by Reschovsky and his colleagues using similar data.
Results reached by Reschovsky could be attributable to methodology, Skinner said. If the mix of physicians sampled by the researchers included a greater percentage of specialists, that could have increased the likelihood of more acutely ill patients being represented in the study. In contrast, Dartmouth samples patients, not physicians, he said.
Reschovsky defended his research. “Our sample was benchmarked against administrative data from CMS, so I am confident that our results are not the result of how our beneficiaries were sampled,” he said in an e-mail.
Others also have challenged the extent to which Dartmouth attributes spending variation to wasteful care. “It is not difficult to identify wasteful practices,” wrote Dr. Richard Cooper, a former professor at the University of Pennsylvania’s Leonard Davis Institute of Health Economics, in a blog post late last year. “The question is whether they account for as much as 30% of healthcare spending.” Copper instead argued that poverty—and the greater prevalence of disease associated with low incomes—is the cause of geographic differences in health spending.
Despite this continuing debate, practice variations, inefficiency and wasteful care remain widely acknowledged as contributors to Medicare’s high costs and significant regional spending differences.
Reschovsky praised Dartmouth’s work for highlighting this phenomenon, but said discrepancies may not be regional as much as specific to each provider’s practice.
Karen Davis, director of the Roger C. Lipitz Center for Integrated Health Care at the Johns Hopkins Bloomberg School of Public Health, agreed. Davis said Reschovsky’s work suggests that analysis of variation should focus more finely on performance of hospitals and providers instead of broader geographic blocks.
The Institute of Medicine’s Committee on Geographic Variation in Health Care Spending and Promotion of High Value Care said in an interim report released this year that “substantial” variation could not be explained even after an adjustment for health status “considerably” narrowed variation.
Stephen Zuckerman, a senior fellow with the Urban Institute and co-director of its health policy center who previously published research on health and spending variation with Hadley, said the supply of providers and different practice patterns do play a role. “There is variation after you control for health status adequately,” he said. “But it’s also the case, once you control for health status adequately, this might be a less important source” of variation than Dartmouth suggests.