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Harvard Study Finds $1.9 Billion in Medicare Waste

Methods can be used to evaluate health care reform efforts

In the first large-scale study to directly measure wasteful spending in Medicare, researchers found that Medicare spent $1.9 billion in 2009 for patients to receive any of 26 tests and procedures that have been shown by empirical studies to offer little or no health benefit.

By analyzing Medicare claims data, researchers at Harvard Medical School found that at least one in four Medicare recipients received one or more of these services in 2009. Moreover, those 26 services are just a small sample of the hundreds of services that are known to provide little or no medical value to patients in many circumstances.

“We suspect this is just the tip of the iceberg,” said author Dr. J. Michael McWilliams. The study was published May 12 in JAMA Internal Medicine.

The researchers said that the methods used in the study will provide useful tools for measuring the effectiveness of reform efforts, such as those in the Patient Protection and Affordable Care Act, aimed at reducing wasteful spending in Medicare and across the health care system.

Previous attempts to measure waste in Medicare and other health care systems have relied on comparing overall spending rates between matched patient populations in different geographical areas. The difference between the higher and lower spending areas is attributed to waste. In addition to giving researchers and policy makers a tool to more precisely measure existing waste, the methods used by the researchers can also provide important feedback on reforms designed to curb waste.

Choosing from hundreds of services that have been found to have little clinical value, the researchers identified 26 that would be detectable using the kind of information available in Medicare claims data. They then searched for examples of the 26 services that were likely wasteful among the claims records of 1,360,908 Medicare beneficiaries from 2009.

The researchers found that varying the criteria used to count wasteful instances of a service can substantially influence the amount of waste measured. A narrower definition would exclude likely beneficial cases but would miss counting some instances of waste. A broader definition would capture more instances of wasteful use but would also inadvertently count some services that were medically beneficial.

The estimate of overall waste with the narrower criteria found that 25% of beneficiaries received at least one of the wasteful services, resulting in a total of $1.9 billion in Medicare spending. The broader version found that 42% of beneficiaries were affected at a cost of $8.4 billion in potentially wasteful spending.

Instead of limiting care through coverage design or payment restrictions, the researchers see potential in global payment models that replace fee-for-service reimbursement with incentives to keep spending within a global budget and to improve quality of care. These models could allow physicians and provider organizations to use more detailed clinical information to identify many more low-value services while encouraging their elimination. Many low-value services — identified, for example, by specialty societies through campaigns such as Choosing Wisely — are difficult to measure well with claims data but could nevertheless be targeted by such broader payment reforms.

Source: Harvard Medical School; May 12, 2014.

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