MedPAC: Medicare spending, services are not regionally equal

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The use of Medicare-covered services is not equivalent to regional variation in Medicare spending and the two should not be confused, according to a report to Congress from the Medicare Payment Advisory Committee (MedPAC).

MedPAC’s December report presented data on the difference between the two using adjusted Medicare spending data to create an index of service use as well as the growth in Medicare service use.

In addition to confirming the difference between disparate measures, the MedPAC report also concluded:

  • Medicare spending varies in part because of factors Medicare uses to account for differing wages and special circumstances, such as wage index and health provider shortage area payments.
  • Although regional variation in service use is smaller than regional variation in Medicare spending, it is "substantial": Service use in higher use areas (90 th percentile) is about 30 percent greater than in lower use areas (10 th percentile).
  • Regions that have high levels of service use are not always the regions with high growth rates.
  • Service use varies at all geographic levels, including within states and among providers within metropolitan statistical areas (MSAs).

Regional variation in Medicare spending per beneficiary reflects many factors, including differences in beneficiaries’ health status, Medicare payment rates, service volume and service intensity. In contrast, regional variation in the use of Medicare services reflects only differences in the volume and intensity of services that beneficiaries with comparable health status receive.

Service use is Medicare spending adjusted to remove the effects of differing payment rates and differing health status among geographic regions. Some of the removed effects include the difference in the average health status of beneficiaries in different geographic regions, additional payments included in the payment systems to reflect unique status of providers and differences in Medicare payment rates that are included in payment systems to reflect differences in underlying input costs.

The average service use for MSAs is 101 percent of the U.S. average, according to MedPAC. For non-metropolitan areas, service use is 97 percent of the U.S. average although there is wide variation underlying both averages.

MedPAC concluded that over all the MSAs and nonmetropolitan areas in the dataset, “the correlation between rate of growth in adjusted spending from 2000 to 2006 and the level of service use in a MSA is slightly negative.” Therefore, an area can have a high level of service use without having a high rate of spending growth and vice versa, according to the report.

Many factors such as difference in physician practice patterns and care decisions drive service use, noted MedPAC, but unique factors may drive extreme levels of service use. When looking at MSAs with high service use levels, factors such as physician practice patterns and beneficiaries’ predilection for care may drive service use above average but different factors may account for the most extreme reported service use in areas, according to Medpac. For example, after adjustments, reported service use in the Miami-Dade County MSA was almost 40 percent higher than the U.S. average and more than 10 percent higher than in any other large MSA.

However, MedPAC warned that because of data limitations and annual variations in spending in smaller counties: "[W]e caution that data for an individual county or small MSA may vary when presenting data from a single year or from a sample of beneficiaries in that county.”