Following the Money

Demand rather than supply factors are likely responsible for an imbalance in Medicare costs; an economic model ties extreme high-costs to patient characteristics.

Nearly half of Medicare expenditures assist just 5 percent of beneficiaries. To spread costs more evenly, health care reform must focus on this high-cost group. The research presented in this article explains why these Medicare beneficiaries incur such high costs.

The authors of the study modeled supply and demand factors that theoretically contribute to high-cost care. Those factors included patient health status and budget constraints (demand), and characteristics of providers (supply). There were two data sources: the 2004-2005 Community Tracking Study (CTS) and the Physician Survey and Medicare claims from 2004 to 2006. The authors defined high-cost beneficiaries as the top 25 percent of beneficiaries, based on their total predicted annual standardized cost of care.

Key Findings:

  • For 2006, high-cost beneficiaries required an average of $48,000 in Medicare spending, compared to $7,000 for all other beneficiaries.
  • High-cost beneficiaries are more than twice as likely to be dual Medicaid-Medicare eligible.

This study modeled factors associated with high costs among Medicare beneficiaries. The findings suggest that current efforts might only curb spending on low-cost patients.