Regional variation in Medicare service use and prescription drug use

1. 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 2

3. 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

4. Medicare spending levels vary widely by geographic area Percent of beneficiaries living in MSA with specified level of spending Percent of national average Source: BASF (2006-2008) Note: Service use is estimated as spending adjusted for input prices, health status and special hospital payments

5. Service use varies less than raw spending, but substantial differences remain Percent of beneficiaries living in MSA with specified level of spending Percent of national average Source: BASF (2006-2008) Note: Service use is estimated as spending adjusted for input prices, health status and special hospital payments

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

7. 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

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 2006.

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

10. 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 90th percentile is about 20% greater than drug use at the 10th percentile

11. 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