High-cost Medicare patients linked to health, not geography

The health of elderly Medicare patients is the single biggest factor in driving costs, not market dynamics or the provider, according to a new report by the Center for Studying Health System Change (HSC).

The results of the study, which focused on more than 1.6 million Medicare beneficiaries linked to the 2004-2005 Community Tracking Study Physician Survey, challenges the notion that healthcare costs vary geographically due to market demands and dynamics--particularly the supply of providers.

"A key finding of the study is that prior research indicating that much of the geographic variation in the cost of treating Medicare beneficiaries is driven by supply-induced demand isn't supported when you comprehensively control for health status and conduct the analysis at the beneficiary level," said HSC Senior Researcher James D. Reschovsky, one of the study's co-authors.

The researchers focused on patient-level data rather than data oriented to specific geographies, and zoomed in on two sets of patients, based on their projected medical costs. The intent was to determine why 85 percent of Medicare spending is linked to just 25 percent of patients. It found that in such a scenario, provider supply and other market-based factors had weak, if any, connection to cost.

The report concluded it would be better to focus specifically on how to reduce the costs associated with more expensive-to-treat patients than on specific geographical areas.

For more:
- read the Center for Studying Health System Change study
- read the Center's press release