Increased Spending On Medical Services Improves Medicare Participants’ Health

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imageMore money spent on medical services for Medicare participants yields better overall health for these patients, reveals a new study from George Mason University and the Urban Institute. The results of the study will appear in an upcoming edition of Health Services Research, published by the Health Research and Educational Trust and an official journal of Academy Health.

"The motivation for the study was a large body of research done over the past 10 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, PhD, a professor of health administration and policy at the university who along with Urban Institute researchers Timothy Waidmann, Stephen Zuckerman, and Robert Berenson analyzed data from more than 17,000 Medicare beneficiaries in conducting the study. Previous reports, he elaborates, had shown that Medicare spending varies greatly by geographic area. However, health outcomes for individuals residing in expensive geographic areas were not necessarily revealed to be better than outcomes for those who live in less expensive geographic areas—leading policymakers to consider limiting Medicare payments in high-cost areas. And the problem with such studies, Hadley says, is that they generally assessed large 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 explains."While that finding is very persuasive, it doesn't look at individuals and the amount of medical care that they each receive.”

Hadley and his colleagues used data from the Medicare Current Beneficiary Survey, 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," Hadley asserts. "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 – we looked at what their health was like at the end of the observation period and whether it varied with how much medical care they received as individuals.”

The study results indicate that spending on medical care indeed impacts Medicare participants’ health. Over a three-year span, a 10% increase in medical spending sparked a 1.9% increase in patients’ health score (also known as called the Health and Activity Limitations Index) and a 1.5% greater probability of survival.

The researchers classify this finding as a "modest effect", nevertheless emphasizing the importance of remembering that he and his colleagues “did find a positive relationship” between health and health care expenditures. C"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," Waidmann asserts. "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."