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How Much is Enough? Efficiency and Medicare Spending in the Last Six Months of Life

  • Jonathan Skinner
  • John E. Wennberg

In Miami, average inpatient Medicare spending on people in their last six months of life was about double Medicare spending in Minneapolis; average ICU days were nearly four times higher. What are the implications of such differences for the efficiency of health care? In this paper, we used Medicare claims data to document the extent of these variations across 306 hospital referral regions in the U.S. We did not find strong evidence that the spending differences were due to underlying variation in health levels across regions. Nor did we find evidence of any benefits from higher spending levels; regional survival rates following acute conditions like AMI (heart attacks), stroke, and gastrointestinal bleeding were not correlated with more intensive health care spending. Finally, a number of recent studies suggest that people prefer less, rather than more intensive treatment. In sum, our results suggest that (i) regions providing more intensive care are not gaining net health benefits over regions providing less care, and (ii) allocative inefficiency may be present, in that patients are not necessarily matched with the treatment they prefer.

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File URL: http://www.nber.org/papers/w6513.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6513.

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Date of creation: Apr 1998
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Publication status: published as How Much Is Enough? Efficiency and Medicare Spending in the Last Six Months of Life , Jonathan S. Skinner, John Wennberg. in The Changing Hospital Industry: Comparing For-Profit and Not-for-Profit Institutions , Cutler. 2000
Handle: RePEc:nbr:nberwo:6513
Note: AG HC PE
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Friedman, Bernard & Pauly, Mark, 1981. "Cost Functions for a Service Firm with Variable Quality and Stochastic Demand: The Case of Hospitals," The Review of Economics and Statistics, MIT Press, vol. 63(4), pages 620-24, November.
  2. Breyer, Friedrich, 1987. "The specification of a hospital cost function : A comment on the recent literature," Journal of Health Economics, Elsevier, vol. 6(2), pages 147-157, June.
  3. David M. Cutler & Mark McClellan & Joseph P. Newhouse & Dahlia Remler, 1996. "Are Medical Prices Declining?," NBER Working Papers 5750, National Bureau of Economic Research, Inc.
  4. David M. Cutler & Jill R. Horwitz, 1998. "Converting Hospitals from Not-for-profit to For-profit Status," NBER Working Papers 6672, National Bureau of Economic Research, Inc.
  5. Martin Gaynor & Gerard F. Anderson, 1991. "Hospital Costs and the Cost of Empty Hospital Beds," NBER Working Papers 3872, National Bureau of Economic Research, Inc.
  6. Jonathan Gruber & Maria Owings, 1994. "Physician Financial Incentives and Cesarean Section Delivery," NBER Working Papers 4933, National Bureau of Economic Research, Inc.
  7. Skinner, Jonathan & Fisher, Elliott, 1997. "Regional Disparities in Medicare Expenditures: An Opportunity for Reform," National Tax Journal, National Tax Association, vol. 50(3), pages 413-25, September.
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