Fairfax, VA, USA. Contrary to previous reports, higher spending levels on medical services means better overall health for Medicare participants, a conclusion drawn from analyzing data from more than 17,000 Medicare beneficiaries.

Policymakers consider limiting Medicare payments in high-cost areas to curb perceived cost overruns because previous reports suggested that Medicare spending varies greatly by geographic area, but with little to show for it.


While earlier reports said that health outcomes for people who live in expensive geographic areas are not necessarily better than those who live in less expensive geographic areas, a research team from George Mason University and the Urban Institute found that spending more on Medicare medical expenses actually resulted in greater survival and a better overall health score, using an index that measures perceived health and activity limitations.

Study Genesis

"The motivation for the study was a large body of research that's been done over the past ten years that typically has found that there is little or no relationship between how much Medicare spends and the health outcomes of elderly people," says Jack Hadley, a Health Administration and Policy Professor at George Mason.

Hadley conducted the study with his co-authors and Urban Institute researchers Timothy Waidmann, Stephen Zuckerman, and Robert Berenson.

The study findings appear in the journal Health Services Research (HSR), published by the Health Research and Educational Trust (HRET).
The previous studies looked at large swathes of populations, typically by geographic location, and used averages to draw their conclusions. "The implication was that higher spending was not contributing to better health," Hadley says. "While that finding is very persuasive, it doesn't look at individuals and the amount of medical care that they each receive."

So in this study, the research team used data from the Medicare Current Beneficiary Survey (MCBS), which collects extensive information from Medicare participants over a three-year span, to determine whether a relationship existed between medical spending and better health. The surveys provide much richer information about the person's health condition than one can typically get from insurance claims data.

"Over this three-year period-controlling for people's health when they first come into the survey and new diagnoses they may have had over the course of the three years-what was their health like at the end of the observation period? And did that vary with how much medical care they received as individuals?" Hadley asks.

The statistical analysis indicates that the individuals' health did vary with their medical care spending. Over a three-year span, for a 10 percent increase in medical spending, there was 1.9 percent increase in the patient's health score, called the Health and Activity Limitations Index and a 1.5 percent greater survival probability.

The researchers classify this finding as a "modest effect" but stress that "the key thing is that we did find a positive relationship as opposed to other studies which have suggested that there's no relationship between how much care a person receives and what their health outcomes are."

"This suggests that policymakers need to understand that across-the-board reductions in Medicare spending in a geographic area or on a national level could have harmful effects on beneficiaries' health," The Urban Institute's Timothy Waidmann explains. "To look for inefficiencies, you need to look more closely at specific conditions and diseases and how those are treated. Analysis from 40,000 feet just doesn't do that for you."

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