Surprising implication of drivers of Medicare FFS variation – MedPAC

New MedPAC report on Medicare fee for service utilization finds large geographic variation not explained by underlying risk or better outcomes. Another indicator of our HC system gone haywire. 
A couple of overarching datapoints highlight the variation. 

  1. Only 25% of Medicare enrollees live in regions where Medicare spending is within 5% of the national average (looking only at utilization the # is 30%)
  2. Spending in top decile region was 55% greater than spending in the bottom decile region (looking only at utilization, the # is 30%)

But that is not the end of the story!  The most intriguing #s lie in the split between ambulatory, acute inpatient, post acute  (home health) and pharmacy utilization. Here the difference between the top decile utilization and bottom decile utilization regions is as follows:

  • Ambulatory: 22%
  • Acute In-Patient: 24%
  • Post-acute (home health): 101%
  • Pharmacy: 20%


Three major implications.

  1. Closing the width of “variation in care” through CPOE enforced consistency with EBM may be less valuable than we thought:  20% variation for many of the most important care categories doesn’t seem that bad!
  2. Differences in care utilization may be a lot more about what doctors think is the right medicine vs. the incentives (implying that change may be a lot harder).  Often variation in care is assumed to be caused by physician money making incentives (e.g. higher utilization in geographies with a more physician-owned practices), BUT the variation in pharmacy spend (where physicians have minimal incentives) is just as much as for ambulatory and acute in patient care.  Interestingly not much difference between pharmacy delivered under Part  “managed care” and ambulatory and acute in-patient which are not
  3. Big opportunity in home health.  If utilization variation could be squeezed here, the whole picture would look a lot better. Look for a lot more entrepreneurial activity, possibly regulatory activity in this area
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