Fraud or Poverty? What Accounts for High Medicare Spending?

Why do some places—and some types of providers—spend more on Medicare than others? Are clusters of high spending due to fraud, or the fact that high numbers of poor, sick people congregate together and drive up prices?

A report issued last week by the Kaiser Family Foundation (KFF), by Juliette Cubanski and Tricia Neuman of KFF and Chapin White of the RAND Corporation, examines current geographic disparities in Medicare spending and how they have shifted in recent years.

The good news is that spending has slowed in some of the highest cost areas, so the gulf between the biggest spenders and the rest of the country is narrowing. But the bad news is that significant gaps persist, and they track places where large numbers of African American and Hispanic beneficiaries live. Unadjusted spending per capital was $9415 in 2013, but the gap between the 20 counties with the highest spending and the 20 counties with the lowest was $13,149 and $6726.

When adjusted for regional cost differences in pricing and health risk, the gap narrows to $9344 compared with $7640; this adjusted rate puts 19 of the 20 highest-spending counties in the South and 14 of the 20 in Texas and Louisiana, with 2 in South Florida. Counties with the lowest adjusted spending are clustered in northern California, Oregon, Hawaii, and upstate New York.

Decisions by some states—such as not expanding Medicaid—mean that the poor in places like Louisiana, Texas, and South Florida will continue to reach age 65 having had limited access to health services. Beneficiaries who account for high levels of Medicare spending tend to be African American or Hispanic, tend to be eligible for both Medicare and Medicaid, and tend to have 5 or more chronic conditions, according to the report. (For an interactive map of where Medicare spending takes place by county, click here.)

Patterns of healthcare delivery in some states, such as shortages of primary care doctors in Texas and Louisiana, coupled with an outsized reliance on skilled nursing facilities (SNFs) and home health care, suggest that without major changes, these states will continue to deliver care in ways that fail to meet the “value-based” goals that HHS Secretary Sylvia Mathews Burwell called for in January 2015. Burwell has called for 50% of all Medicare reimbursement to be based on value-based payment models by 2018.

According to the report, geographic disparities in Medicare spending prompted such alarm in 2009 that Congress called on the Institute of Medicine to study the issue and make recommendations on what to do. IOM found that while the geographic gaps were real, some doctors and hospitals within the problem areas were not at fault, and reforms based on geography alone would be unwise and unfair. Rather, CMS has sought to address practices that are more common in some parts of the country—such as frequent readmissions, poorly coordinated care, and badly handled transitions that result in overuse of SNFs.

In 2013, these patterns continued: the report found that the share of traditional Medicare beneficiaries using SNF in the 20 highest-spending counties was 13.8%, compared with a national average of 9.4% and only 4.7% in the 20 lowest-spending counties. Home health visits averaged 6207 in the highest spending counties, or 6 times more than the lowest spending counties, which saw 1019.

As the report notes, underlying health conditions of the population account for many spending anomalies: “These findings suggest that higher unadjusted county-level Medicare per capital spending is partly driven by having a traditional Medicare beneficiary population that is poorer and sicker than average and uses hospital inpatient services and post-acute care at higher rates and with greater intensity than beneficiaries in lower-spending counties.”