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Home / News & IndustryManaged Care Insight and Analysis
Updated: Sept. 30, 2008
Higher Standard Treating Chronically Ill Could Save Medicare $50 Billion

By benchmarking the treatment of chronically ill patients in the last two years of life to the standards of the Mayo Clinic Medicare could save $50.1 billion over five years, according to a report from the Dartmouth Institute for Health Policy and Clinical Practice.

Medicare pays many hospitals and their doctors more than the most efficient and effective healthcare institutions to treat chronically ill people, yet gets worse results, the report said.

The new edition of the Dartmouth Atlas of Healthcare: Tracking the Care of Patients with Severe Chronic Illness shows that institutions that give better care can do it at a lower cost because they don’t overtreat patients.

However, the report said Medicare and most other payers encourage the overuse of acute care hospital services and the proliferation of medical specialists thanks to misplaced financial incentives, especially for treating chronically ill people.

Caring for people with chronic disease now accounts for more than 75 percent of all healthcare spending. And overuse and overspending is not just a Medicare problem — the healthcare system as a whole lacks efficient, effective ways of caring for people with severe chronic illnesses, the report said.

Lead author Dr. John Wennberg and colleagues Drs. Elliott Fisher, David Goodman and Jonathan Skinner, studied chronically ill patients because each year a third of Medicare dollars are spent on them during the last two years of life.

Two-thirds of the people in the study were diagnosed with cancer, congestive heart failure and/or chronic lung disease.

Wennberg, a DMS professor of community and family medicine, called for a crash program to learn how leading organizations such as Mayo use fewer resources and spend less per capita than their peers while receiving high marks on quality measures.

It isn’t so much what each medical service costs, the report said, it is how many services doctors prescribe.

Getting usage under control is the most critical factor in controlling costs, the researchers said.

The researchers discovered staggering variations in the number of services that patients with severe chronic disease receive at the end of life, depending on the hospital, region or state and not on how sick they are.

For example, an elderly person spent an average 10.6 days in the hospital during the last two years of life in Bend, Ore., but 34.9 days in Manhattan. The variation is even more striking in the last six months of life, when chronically ill patients visited the doctor an average of 14.5 times in Ogden, Utah, compared to 59.2 times in Los Angeles, the report said.

That creates wild variations in how much Medicare spends on these patients. The US average was $46,412. The highest spending was in New Jersey at $59,379 per patient, or a quarter more than the average. The lowest was in North Dakota at $32,523 per patient, or a quarter less than the average.

The research shows that hospitals, regions and states that use more services per patient do not necessarily have higher quality care. In fact, it is slightly worse, the report said.

The Dartmouth project studied the records of millions of Medicare enrollees who died from 2001 to 2005 and had at least one of nine severe chronic illnesses. Using those records, researchers benchmarked care nationally to the care provided in the region where Mayo has its flagship clinics and is the dominant healthcare provider.

Total spending for the population in this study was $289 billion over the five years. If the spending per patient everywhere mirrored that in Mayo’s home region of Rochester, Minn., Medicare could have saved $50.1 billion, or 17.3 percent of all spending on these patients alone. A benchmark to a higher cost but efficient region such as Sacramento, Calif., where labor costs are the 26th highest of the 306 regions, shows Medicare would still have saved $28.9 billion.

The report said there are no guidelines for delivering care and lacking these guidlines both doctors and patients believe that more services — that is, using every available resource such as specialists, hospital and ICU beds, diagnostic tests, imaging and the like — mean healthier patients.

Based on this assumption, it is the supply of beds and treatments and specialists — not how sick people are — that determines how much they get used. The supply of services creates its own demand, so regions with more resources have more usage and thus higher costs.

Consider this comparison between the Mayo Clinic’s flagship St. Mary’s Hospital and UCLA Medical Center.

Spending: UCLA spent more than $93,000 per patient over the last two years of life. The Mayo Clinic, by contrast, spent $53,432 — a little more than half the amount of UCLA on similar patients over the same period of time.

Utilization: Chronically ill patients in their last six months of life had more than twice as many physician visits at UCLA compared with Mayo, and they spent almost 50 percent more days in the hospital.

Resource Use: Compared to the Mayo Clinic, UCLA uses one-and-a-half times the number of beds, almost twice as many physician FTEs in managing similar patients.

Address: Dartmouth Institute for Health Policy and Clinical Practice, 35 Centerra Parkway, Lebanon, NH 03766; (603) 653-0800,

  This article was taken from:
The Executive Report on Managed Care

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