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Consumption of Medical Services


In the United States, there is a wide geographical variation in per capita spending on health in addition to Medicare spending for every beneficiary. In this paper, an examination of geographic variation in the amount of money paid by Medicare has been carried out. The aim is to determine the effect of those variations and ways of reducing the differences in spending between locations identifies as low-cost and high-cost sites. The various interpretations of those variations by different researchers are also looked at in detail. It becomes evident that the present geographic variation in Medicare spending presents an opportunity to reduce the overall cost associated with healthcare. To adjust Medicare spending appropriately on the basis of geographic location, however, policy-makers should have a deeper understanding of the factors that result in the identified geographic variation in spending. They should be well informed about costs, the outcomes, and the use of the service. Moreover, suitable policies and proper infrastructure should be provided to facilitate the process.








Consumption of Medical Services


The healthcare policy in the United States today is as a result of efforts by the government to cushion its citizens from the high cost of medical care. For decades, healthcare has been consuming a considerable share of the country’s resources, whether physical financial or even human. The history of Medicare dates back to 1965 when President Lyndon Johnson signed legislation that paved the way for the introduction of health care coverage for people aged 65 years and above. Medicare has continued to date providing healthcare for individuals in need. By 2017, approximately 58.5 million people had enrolled to receive health care coverage under Medicare. In 2016, the total spending on Medicare was $672.1 billion, accounting for nearly 20% or one-fifth of the sum of national health spending (Anderson, 2018). By 2017, the total benefit payments made by Medicare amounted to $702, a considerable increase from $425 billion that was paid in 2007 (Kaiser Family Foundation, 2019). Kaiser’s Foundation estimates that over a period of 10 years, spending on Medicare, when measured on average on the basis of per capita, it will increase at a rate of 4.6% annually as a result of increase in the number of people that have enrolled for Medicare, rising costs of healthcare, an increase in demand for these services.

Although some researchers have argued that the annual growth rates of Medicare per capita spending are consistent with the growth of healthcare expenditures expressed as a fraction of gross domestic product of the country, researchers have established that there is significant variation in Medicare spending for every beneficiary. Differences in spending exist from one region to another within the country. Over the years, different researchers have spent time studying the origin of those variations, their consequences, and the appropriate measures to bring down the rate of spending in areas or locations earmarked as high-cost.Consumption of Medical Services

While addressing the issue of geographical differences in the amount of money spent on Medicare, Reschovsky, Ghosh, Stewart, and Chollet (2012) claimed that the majority of the research concentrated on total spending. According to these authors, researchers should focus on the intensity and volume of certain categories of services that are demanded and delivered to patients. The move would help discover effective ways of lowering cost while at the same time maintaining the quality of care. To this effect, Reschovsky et al. (2012) conducted a study to investigate variation in utilization of Medicare across selected communities nationwide living in sixty nonmetropolitan and metropolitan sites. Moreover, the researchers came up with 13 service categories that enabled them to determine the average standardized cost associated with every beneficiary. The focus was also paid to the treatment of patients of roughly equivalent health status by different communities.

The findings obtained by Reschovsky et al. (2012) revealed that considerable differences exist in the utilization of Medicare across different communities and service categories. When the researchers shifted their focus to determine differences in service categories covering the identified 60 sites, it was found that durable medical equipment indicated the greatest variation. It is evident that in their study, Reschovsky et al. (2012) used the different categories of Medicare to measure practice patterns. The results obtained showed that considerable differences exist between areas regarded as high-utilization and those identified as low or medium utilization areas.  Reschovsky et al. (2012) could not identify the combination of services or locations that were responsible for efficient medical care delivery. However, they identified that practice patterns differed considerably across the 60 locations. According to them, reasons for these differences could include Medicare fraud, induced demand initiated by providers, and different clinical approaches from one region or location to another. Other factors that could be responsible for these differences include state laws and individual preferences by the patients.

On her part, Cassidy (2014) agrees with other researchers interested in studying Medicare’s variations in use and spending that despite its consistent benefits, the amount spent on each beneficiary by Medicare has not been constant nationwide. While quoting researchers from Dartmouth Institute, Cassidy (2014) explain that the differences in spending are found in all levels, regional and state. In the past years, a number of policymakers and researchers in healthcare have been of the view that the present geographic variation in Medicare spending presents an opportunity to reduce the overall cost associated with healthcare. Cassidy (2014) quotes Pter Oszag who in 2009 claimed that the adoption of practice patterns and spending present in low-cost areas by high-cost sites could help reduce the amount spent on healthcare by approximately $700 billion annually or 29%.Consumption of Medical Services

The main shortcoming with this point of view is that it does not factor in differences in quality and intensity of services between areas designated as high-cost and those identified as low-cost sites. It is possible that the beneficiaries in high-cost areas are not given too much care than they need. Rather, it is the beneficiaries in low-cost areas that are denied sufficient care. Moreover, it could be possible that the geographical variation in spending is as a result of changes in the health status of beneficiaries from one location to another. Therefore, reducing payments on the basis of the graphical location would, in the end, deny beneficiaries in previously high-cost areas access to the required care. It is evident that to adjust Medicare spending appropriately on the basis of geographic location, policy-makers should have a deeper understanding of the factors that result in the identified geographic variation in spending.

For years, researchers have sought to explain the different factors that could be responsible for variations in spending. Attention has been paid to beneficiaries’ health status and the services that they are given. The amount of money released by Medicare following the provision of services has also attracted considerable attention. Moreover, the spending patterns by other insurance types have been compared with those of Medicare. According to Cassidy (2014), the graphical differences that characterize Medicare payment is due to the fact that for a given service, Medicare will pay varying amounts from one geographical location to another. According to her, the different rates reflect various differences between the two locations or regions. They include variations in rent, wages, and healthcare provider attributes. For instance, higher payments will be made in geographical areas that have insufficient health professionals. Similarly, hospitals that serve poor populations, as well as teaching hospitals, tend to receive additional payments. Such institutions are referred to as disproportionate-share hospitals. When spending has been standardized to account for such variations in payment rates by Medicare, changes occurs in areas previously perceived as high-cost and low-cost spending per beneficiary as shown in the tables below.Consumption of Medical Services


Source (Cassidy, 2014)

It is because of such results that Fisher, Wennberg, Stukel, Gottlieb, Lucas, and Pinder (2003) concluded that there is negligible variation in spending as a result of differences that exist in Medicare payments. However, it is evident that this view contradicts that of Reschovsky et al. (2012), who claim that a significant share of geographic variations can be explained through differences in payments. According to Reschovsky et al. (2012), a considerable variation exists from one state or location to another even after standardization of the identified differences in payments has been made.

One important claim made by Reschovsky et al. (2012) is that lowering of the cost of Medicare could be achieved by considering the intensity as well as the volume of certain categories of services, thereby leaving the quality unaltered. According to Shapiro, Lasker, Bindman, and Lee (1993), controlling volume would require a reduction of all services that have minimal benefits to patients. At the same time, the delivery of vital and more beneficial care should be encouraged and increased. According to them, this would be a difficult task to achieve. The researchers present three different ways of lowering the cost of Medicare without compromising quality. The first approach is described above and entails identifying and doing away with unnecessary services. Second, Shapiro et al. (1993) recommend selecting an effective alternative of care that is less costly. For instance, some services could be delivered in an outpatient setting rather than inpatient. Additionally, generic prescription drugs could be used as an alternative given that their prices are lower. The third approach is providing relevant preventive services that in the long run will result in savings.

Shapiro et al. (1993) support the view by Reschovsky et al. (2012) that it is possible to reduce costs by curtailing rises in both intensity and volume without negatively impacting quality. To achieve this, however, all the stakeholders including the physicians, health institutions, members of the public, and payers themselves should have accurate information concerning the practice. They should be well informed about costs, the outcomes, and the use of the service. The second point mentioned by the authors is that the stakeholders identified above namely physicians, patients, and payers need reliable information to distinguish suitable and unstable methods of delivering care. Finally, suitable policies and proper infrastructure should be provided to facilitate the process. Apart from the organization, sere should be a data infrastructure, payment policies in place, and application of professionalism among other things.Consumption of Medical Services

It is evident that the geographical variation that has been identified in medical spending by different researchers cannot be fully explained. There are always and explained to graphical differences even in cases where researchers have considered several factors. In fact, the identified geographic variations are an indication that Healthcare delivery is both complex and heterogeneous. However, these variations can serve as important clues in reducing spending and at the same time raising the quality and efficiency of service delivery





Anderson, S. (2018). A brief history of Medicare in America. Medicare Resources. Retrieved April 20, 2019, from

Cassidy, A. (2014). “Health policy brief: Geographic variation in Medicare spending,” Health Affairs. Retrieved April 20, 2019, from

Fisher, E. S., Wennberg, D. E., Stukel, T. A., Gottlieb, D. J., Lucas, F. L., & Pinder, E. L. (2003). The implications of regional variations in Medicare spending. Part 2: health outcomes and satisfaction with care. Annals of internal medicine138(4), 288-298

Keiser Family Foundation (2018).  The facts on Medicare spending and financing. Keiser Family Foundation. Retrieved April 20, 2019, from

Reschovsky, J. D., Ghosh, A., Stewart, K. A., & Chollet, D. J. (2012). Durable medical equipment and home health among the largest contributors to area variations in use of Medicare services. Health Affairs31(5), 956-964.

Shapiro, D. W., Lasker, R. D., Bindman, A. B., & Lee, P. R. (1993). Containing costs while improving quality of care: the role of profiling and practice guidelines. Annual review of public health14(1), 219-241.