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

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.