Regional variation in Medicare service use and prescription drug use Mark E. Miller, PhD Executive Director, MedPAC November 9, 2010

2 Spending and service use are different metrics Spending varies due to differences in health status, wages, special Medicare payments, and other factors Wage index and special payments are separate policy issues that deserve consideration in their own right To compare regional variation in practice patterns and patients care decisions, focus on variation in service use

Methods for measuring regional variation in Medicare service use Data: raw spending on Medicare A & B Geographic areas: MSAs, non-MSAs Adjustments for regional differences in Prices (e.g., hospital wage index) Special payments (e.g., IME, DSH, GME, rural hospitals, HPSA) Demographics, health status Result: Regional service use better reflects differences in providers practice patterns and patients care decisions 3

Medicare spending levels vary widely by geographic area 4 Percent of national average Percent of beneficiaries living in MSA with specified level of spending Source: BASF ( ) Note: Service use is estimated as spending adjusted for input prices, health status and special hospital payments

Service use varies less than raw spending, but substantial differences remain 5 Percent of national average Percent of beneficiaries living in MSA with specified level of spending Source: BASF ( ) Note: Service use is estimated as spending adjusted for input prices, health status and special hospital payments

Variation in spending, service use Spending at the 90 th percentile is about 55% greater than spending at the 10 th percentile Service use at the 90 th percentile is about 30% greater than service use at the 10 th percentile 6

Variation exists at all levels Variation exists within states Among areas in Oklahoma, per beneficiary service use is 24% higher in the highest use area than the lowest use area Variation also exists among providers within MSAs In Phoenix, at the individual physician level, cardiologists utilization for similar episodes of care varied 20 percentage points 7

8 Service use among outliers may be related to unique factors SOURCE: Acumen compilation of fee-for-service (FFS) Medicare claims data (100% sample). Spending data are annualized for beneficiaries with either Part A or Part B coverage for at least one month during Neighboring FL counties Count of beneficiaries 2006 spending per beneficiary DME Home health Collier 60,112 $220 $330 Monroe 11, Broward 141, ,150 Miami-Dade 183,7542,200 2,830 National avg.37,285,

9 Level of service use is not necessarily consistent with growth in service use Low service use areas may be low or high growth Similarly, high service use areas may be low or high growth

Measuring variation in Medicare drug use Part D prescription drug event data (2007 & 2008) Drug use is gross drug spending adjusted for: Prices Demographics, health status Other factors (e.g., low-income subsidy status) Drug use at the 90 th percentile is about 20% greater than drug use at the 10 th percentile 10

Findings summary Service use varies less than spending for all types of services Large differences in service use remain, even after controlling for prices, demographic characteristics, and health status Level of service use is not necessarily consistent with growth in service use Variation in service use exists at all levels 11