NCPA - National Center for Policy Analysis


July 29, 2009

News stories often imply that doctors in high-spending Medicare states are practicing medicine in a way different from doctors in low-spending states.  One is left to infer that this must also be true for Medicaid patients and private patients as well.  But this inference is not entirely true, say Andrew J. Rettenmaier and Thomas R. Saving, the executive associate director and director, respectively, of the Private Enterprise Research Center at Texas A&M University, and senior fellows with the National Center for Policy Analysis.

For example, although Louisiana is the highest spending Medicare state and South Dakota is the lowest, average per capita health care spending for the whole population is actually lower in Louisiana ($5,040) than it is in South Dakota ($5,327).  This is not an isolated case, say Rettenmaier and Saving:

  • Although Texas is fifth highest in Medicare spending per capita, it is 43rd in per capita spending for the state's entire population.
  • California is 11th in Medicare spending, but 42nd overall.
  • North Dakota is 43rd for Medicare, but 11th overall.

It appears that high Medicare spending is often associated with lower spending on the non-Medicare/Medicaid population and vice-versa.  This observation is consistent with cost shifting between public and private payers, although there may be other explanations as well.

Differences in state characteristics, including demographics, income, health status and the peculiarities of state health care markets, must also be considered, say Rettenmaier and Saving.  For example:

  • Spending typically is higher the poorer the population's health, the older their age and the higher their income.
  • Higher income maintenance payments are also associated with higher Medicare spending and population-wide spending.
  • Higher uninsured rates are associated with higher Medicare spending but, as expected, lower health care spending by the non-Medicare/Medicaid population.

After adjusting for differences in state characteristics, we can re-examine the original premise.  Suppose that we could induce doctors everywhere to practice medicine the same way it is practiced in the fifth lowest spending state.  Based on the experience over a 14-year period, the potential savings across all populations is only about 5 percent!  

Of course, changing the practice of medicine in 45 states would entail administrative costs. Patients could potentially be harmed in the process. As practical matter there are probably no savings to be had at all.

Source: Andrew J. Rettenmaier and Thomas R. Saving, "Can Health Reform Save Money?" National Center for Policy Analysis, July 29, 2009.

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