Exploring Cost and Quality of Medicare in the United States using Analytics

Exploring Cost and Quality of Medicare in the United States using Analytics

Viju Raghupathi (Koppelman School of Business, Brooklyn College, City University of New York, Brooklyn, NY, USA) and Wullianallur Raghupathi (Gabelli School of Business, Fordham University, New York, NY, USA)
DOI: 10.4018/IJHISI.2016040101


In this research, the authors explore the association of cost and quality of care indicators for Medicare in the United States. Using analytics they offer a portfolio of influencing factors and geographic areas that are most and least expensive for Medicare recipients. The cost indicator includes Medicare charges; the quality of care indicators include hospital location, number of discharges, readmissions, mortality rate, age, percentages of uninsured population and population aged 65 and older. The results indicate that Medicare cost is not positively associated with quality of care, suggesting that patients in higher-priced facilities do not necessarily receive better quality of care. Moreover, there are regional cost variances for the same procedure. The authors show how a national effort to standardize costs of heart-related Medicare procedures could result in substantial savings in healthcare spending. They offer healthcare agencies and hospitals actionable insights for improving operational efficiency and providing more affordable care.
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1. Introduction

Medicare is a federally funded health insurance program. Introduced in 1965 by the US government, Medicare offers coverage to Americans aged 65 and older who have worked and contributed to the system through payroll taxes. Coverage extends to people younger than 65 with such disabilities as amyotrophic lateral sclerosis, cancers, mental illnesses, and other debilitating disorders, who are ineligible for social security. The program assists in paying for vital services like hospitalization, physician visits, prescription drugs, post-acute care, nursing home care, home care, hospice, and preventive services. In all, about 48 million people benefitted from Medicare in 2010. In 2011, there were approximately 15.3 million inpatient stays, constituting 47.2% of total inpatient hospital costs in the US (Torio & Andrews, 2011). Although Medicare coverage is wide, the focus of this paper is on cardiovascular conditions, which constitute 27% of total hospital discharges in the US in 2011.

Medicare spending is central to discussions on moderating the growth of federal and healthcare spending in the US, especially considering that Medicare expenditures accounted for 14% of the federal budget in 2014 and more than 20% of total personal health expenditures in 2013 (Cubanski et al., 2015). As the challenges of serving a large and growing aging population and sustaining the program for future generations continue, Medicare will remain on the federal policymaking agenda.

Understanding Medicare payment rates is important. According to the Congressional Budget Office (CBO), approximately 50 million people (almost 20% of the US population) currently rely on Medicare benefits for health insurance coverage (Congressional Budget Office, 2015). In 2011, gross spending for Medicare amounted to $560 billion, or approximately 3.5% of GDP. Not surprisingly these numbers are expected to rise in the future. In the CBO’s extended baseline scenario, Medicare spending will grow to almost 6% of GDP by 2030 (Congressional Budget Office, 2012).

This paper addresses the question of understanding the relationship between Medicare costs and quality of care. Our research shows that Medicare payment rates for identical procedures vary, in some cases greatly, depending on where they are performed and who is performing the procedures. And yet higher payment rates do not always correlate to higher quality of care. We look at this paradox with a view to analyzing the association between cost, procedure type, and location, using current research findings. We also identify factors other than cost that measure quality of care. Given Medicare is a nationally funded health insurance program, it is imperative that costs and quality of care be standardized and regulated so as to provide affordable healthcare nationwide.

Research on cost and quality of Medicare delivery is important to several health entities, including but not limited to providers, policymakers, payers and beneficiaries (Hirth et al., 2001; Keating et al., 2012; O’Hare et al., 2010; Zhang et al., 2010a, 2010b). Variations in cost and quality exist in terms of population demographics and socioeconomic status (Cooper et al., 2012; Ricketts & Belsky, 2012; Rosenthal, 2012; Zhang et al., 2012; Zuckerman et al., 2010); physician fees (Mitchell & Davidson, 1989; Pope et al., 1989); health status and prevalence of particular diseases (Rosenthal, 2012; Sargen et al., 2012; Zuckerman et al., 2010); patient preference impacting service usage (Rosenthal, 2012; Zhang et al., 2012); discretionary decisions by health care providers (Cooper et al., 2012); and the supply of healthcare resources (Baicker & Chandra, 2004; Cooper, et al., 2012; Ricketts & Belsky, 2012; Zuckerman et al., 2010).

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