Medicare Spending Has Wide Regional Disparities, Study Finds

The government's cost of providing health care to seniors varies widely across the country, with Medicare spending three times as high for enrollees in Miami than in Honolulu

A new study examining 14 years of Medicare spending finds that state-by-state increases vary wildly depending on how much medical care is available.

The study, released on Feb. 25 in the New England Journal of Medicine, found that annual Medicare spending increased an average of 3.5% from 1992 to 2006 nationwide, but the burden on the government program was not uniform: Nebraska's spending rose 5.3% annually over the same period, more than any other state, while the District of Columbia clocked in with the lowest annual inflation, at 1.6%.

Spending per Medicare enrollee also varied widely, from a high of $9,564 in New York in 2006 to a low of $5,311 in Hawaii. The national average for 2006 was $8,304. The reasons given for the discrepancies were not the health or wealth of a particular state's population but the amount of health-care resources available. The more hospital beds and doctors in a region, the higher the costs billed to Medicare.

Obama Targets Health Care

Consequently, Medicare spends nearly three times more to care for enrollees in Miami than in Honolulu, and the cost of providing health care to senior citizens is rising more than twice as fast in Dallas as in San Diego. Lead author Dr. Elliott Fisher, director of the Center for Health Policy Research at the Dartmouth Institute for Health Policy, says the data highlight how considerable costs could be cut from the nation's health-care bill. "The good news is that in many regions, spending is growing relatively slowly," he said. "We can figure out what these regions are doing and encourage the high cost areas to emulate their practices."

President Barack Obama, in his speech to Congress on Feb. 24, called for major reforms to the U.S. health-care system that would cover the 45 million uninsured and lower costs. Most health-care experts think the cost issue will be far more difficult to address, and far more crucial, than coverage. Earlier this week federal economists estimated that total U.S. health-care spending will reach $2.5 trillion this year, consuming 17.% of gross domestic product. By 2018 national health-care spending is expected to nearly double, to $4.4 trillion, or 20.3% of GDP. The Dartmouth researchers estimated that, at current spending rates, the Medicare balance sheet will be $660 billion in the red by 2023. However, if the annual growth in spending were reduced from the national average of 3.5% to San Francisco's 2.4%, Medicare could instead accrue a balance of $758 billion over the same period.

The authors of the study examined spending differences in 306 local health-care markets across the country. They found no evidence of greater survival gains in the highest-spending regions. Instead, they said, doctors in those high-spending areas were much more likely to recommend expensive and discretionary services, such as noncritical hospital admissions, referrals to subspecialists, and more diagnostic tests.

Fee-for-Service Blamed

Fisher blames the current fee-for-service payment structure, where doctors and hospitals are paid for every service regardless of need or outcome, for these practices. "Physicians cannot afford the time it takes to help patients understand why a test or procedure is not needed. Hospitals lose money when they improve care in ways that reduce admissions," the study noted. To lower costs, Fisher suggests that policymakers focus reform efforts on current areas of overspending, and encourage doctors in New York to pay attention to Hawaii, for example.

An interactive map showing the regional health-care spending can be found at here.

Arnst is a senior writer for BusinessWeek based in New York.