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Filed Under:Health Insurance, Individual Health

Researchers: Medicare Advantage cuts all hospital bills

Adam Smith, the father of free-market philosophy (Kress Collection, Harvard Business School)
Adam Smith, the father of free-market philosophy (Kress Collection, Harvard Business School)

Competition in the Medicare Advantage program may be helping to hold down the cost of all U.S. hospital care.

Katherine Baicker, a health economist at Harvard University, and two colleagues at Harvard -- Michael Chernew and Jacob Robbins -- make that argument in a copyrighted working paper on Medicare managed care "spillover effects" published behind a paywall at the National Bureau of Economic Research.

The researchers started with Medicare spending data from the Medicare Rate Book, plan enrollment data from the Centers for Medicare & Medicaid Services (CMS), state inpatient spending data from the Agency for Healthcare Research and Quality's Healthcare Cost and Utilization Project's State Inpatient Databases, and county-level economic and demographic data from the Health Resources and Services Administration's Area Resource File.

The researchers looked at how increases in Medicare Advantage penetration correlate with spending at the hospital level and county level on care for traditional Medicare plan enrollees and commercial health plan enrollees. They tried to adjust the data for differences in counties' economic and demographic differences.

The researchers found that a 10 percent increase in the Medicare Advantage penetration rate in a county correlated with a 2.4 percent drop in hospitalization costs for all patients.

The drop in costs seems to be about as big for traditional Medicare plan enrollees and commercial plan enrollees as for Medicare Advantage enrollees, the researchers said.

Similarly, a 10 percent increase in the Medicare Advantage penetration rate seemed to correlate with a 0.2-day decrease in length of stay for Medicare Advantage patients, to about 4.8 days, and somewhat larger decrease for traditional Medicare plan and commercial plan enrollees. But the effects of a higher Medicare Advantage penetration rate on length of stay for the traditional Medicare and commercial plan enrollees was not statistically significant, the researchers said.

The results suggest that increasing Medicare Advantage penetration reduces the intensity of care delivered during an inpatient stay, without doing much to decrease the number of hospitalizations, the researchers said.

The researchers suggested that the data seem to indicate that hospitals in high-Medicare Advantage penetration areas tend to deliver care for all patients more efficiently because of improvements they make in technology and infrastructure.

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Nichole Morford
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