Politics and health care spending in the United States: A case study from the passage of the 2003 Medicare Modernization Act

This paper analyzes the interplay between congressional politics, the actions of the executive branch, and hospitals’ regulated Medicare payments. We focus on the 2003 Medicare Modernization Act (MMA) and analyze a provision in the law – Section 508 – that raised certain hospitals’ regulated payments. We show, via our analysis of the Section 508 program, that Medicare payments are malleable and can be influenced by political dynamics. In the cross-section, hospitals represented by members of Congress who voted “yea” on the MMA were more likely to receive Section 508 payment increases. We interviewed the Secretary of Health and Human Services who oversaw the MMA, and he described how these payment increases were designed to win support for the law. The Section 508 payment increases raised hospitals’ activity and spending. Members of Congress representing recipient hospitals received increased campaign contributions after the Section 508 payment increases were extended. Ultimately, our analysis highlights how Medicare payment increases can serve as an appealing tool for legislative leaders working to win votes for wider pieces of legislation.