Medicare huge influence in healthcare spending rates

Medicare is by far the biggest payer to hospitals for medical services, and a study suggests that its might greatly influences price-setting for other payers.

Every $1 decrease in Medicare spending on a surgical-level procedure leads to a $1.30 decline in spending among private payers, according to a study by researchers at the University of British Columbia (UBC) and the University of San Diego. "Our results suggest that Medicare's decisions are far more influential than you may imagine," Joshua Gottlieb, a UBC economist and co-author of the study, told The Washington Post.

The downside of such a relation between Medicare and pricing for healthcare services means that it can lead to distortions when the program overpays for healthcare services, according to the Post. The publication has noted in many instances the program can lead to perverse incentives to provide some services, has broad pricing disparities in some parts of the country and sometimes relies on faulty data provided by physicians and other providers to set prices.

"The government may be spending billions of dollars more than necessary for some products and services. Moreover, the influence of Medicare prices means that those faults may be replicated throughout U.S. healthcare," the newspaper observed. Bruce Vladeck, who headed the predecessor to the Centers for Medicare & Medicaid Services in the 1990s, told the Post that Medicare often overpays for a lot of services.

Nevertheless, spending in the Medicare program slowed significantly between 2000 and 2010, but studies by the Congressional Budget Office (CBO) were only able to link one-quarter of that slowdown to changes the Medicare program made in what it paid for specific healthcare services. The CBO has also forecast that Medicare spending will double over the next decade, topping $1 trillion annually by 2022.

To learn more:
- read The Washington Post article
- here's the study

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