Focus On Costly Beneficiaries To Control
Medicare Cost Growth, Health Affairs Article Says

Online Forum Discusses Value Of Disease Management,
Paying For Performance To Save Money And Improve Quality

BETHESDA, MD—To rein in the growth of Medicare spending, the federal government may get better results if it focuses on the costliest patients rather than the costliest regions, according to a new article published today as a Health Affairs Web Exclusive.

The sickest Medicare beneficiaries account for a disproportionately high share of Medicare expenditures, with the costliest 5 percent of beneficiaries consuming 47 percent of total Medicare expenditures, according to the article by Steve Lieberman, assistant director of the Health and Human Resources Division at the Congressional Budget Office, and three colleagues.

This article explores two alternative approaches for policymakers seeking to lower the growth of Medicare spending. The first is to focus on high-spending individuals to make health care for the sickest beneficiaries more efficient, possibly through techniques like disease management. A second approach, advocated by some health policy experts, is to focus on high-spending regions to change practice patterns, reducing ineffective and “supply sensitive” health care treatment—those procedures that vary in frequency based on the number of providers in an area.

Adding prescription drug spending to the already fast-growing cost of Medicare is likely to prompt policymakers to seek new ways to control costs.
Based on an analysis of spending data, Lieberman and colleagues find that focusing on expensive beneficiaries who typically have multiple chronic conditions has more potential to control health care cost growth. For example, if Medicare focuses on reducing spending for the costliest 1 percent of beneficiaries, it is attacking about 17 percent of total spending. If Medicare focuses on the costliest Hospital Referral Regions in which 1 percent of beneficiaries live, those beneficiaries represent only 1.2 percent of total Medicare spending.

“From a budgetary perspective, a strategy centered on high-spending individuals could hold the promise of greater ‘bang for the buck,’” Lieberman and his colleagues say. “Simply, there’s more money concentrated in fewer individuals.”

In an accompanying article, Robert Berenson, an Urban Institute senior fellow who once was director of Medicare’s Center for Health Plans and Providers, proposes changing Medicare’s payment policies from that of a claims payer to that of a “strategic purchaser” that seeks to improve quality at an acceptable cost.

As a strategic purchaser, Medicare would apply such payment tools as the Medicare+Choice risk adjuster to identify beneficiaries who could benefit from disease management; more frequent recalibration of hospital payments to avoid market distortions that increase Medicare costs; and bonuses to hospitals that achieve quality goals.

In an accompanying commentary, David Wennberg, director of the Center for Outcomes Research and Evaluation at Maine Medical Center in Portland, and John Wennberg, director of the Center for the Evaluative Clinical Sciences at Dartmouth Medical School, write that the Centers for Medicare and Medicaid Services is heading in the right direction when it initiates projects demonstrating value purchasing among physician group practices. But in order for this to work, it must change from a retrospective payment system that pays more for doing more, and it must incorporate hospitals.

The Lieberman article is available at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w3.603.

The Berenson article is available at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w3.586.

The Wennberg article is available at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w3.614.

An interview with Lieberman and Berenson will be available on the Henry J. Kaiser Kaiser Family Foundation Web site beginning at 8:30 a.m. Wednesday, Dec. 10. To view the interview, go to http://www.kaisernetwork.org/healthcast/healthaffairs.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research.

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©2003 Project HOPE–The People-to-People Health Foundation, Inc.