Table 2. HIGH-COST MEDICARE BENEFICIARIES Concentration of Expenditures Among Subgroups of Medicare Beneficiaries, by Spending Group, 2001 Source: Congressional Budget Office based on data from the Centers for Medicare and Medicaid Services. ESRD = end-stage renal disease. Elderly beneficiaries are defined as those 65 years of age or older. As an example of how to read the information in this table, the top 5 percent of elderly Medicare beneficiaries accounted for 41.9 percent of all spending by elderly beneficiaries. in 2001. Nearly 20 percent of high-cost beneficiaries were age 85 or older, compared with 10 percent of other beneficiaries, and about 14 percent died during the year. The gender and racial compositions of the two groups were very similar. The prevalence of chronic conditions, which typically require ongoing care and treatment to maintain health and functional status and to slow the progression of the disease, was also strongly linked to high expenditures and the use of medical resources. More than 75 percent of high-cost beneficiaries were diagnosed with one or more of seven major chronic conditions in 2001. More than 40 percent of high-cost beneficiaries had coronary artery disease, and about 30 percent had each of three other conditions-diabetes, congestive heart failure, and chronic obstructive pulmonary disease. All of those conditions were much less prevalent among low-cost beneficiaries. In terms of the medical services they received, the highand low-cost groups were similar in that they both visited physicians regularly (see Table 4). The vast majority of Medicare beneficiaries in both groups saw a physician in 2001; however, among high-cost beneficiaries who visited a physician, the average number of visits during the year was 11, compared with six visits among low-cost beneficiaries who visited a physician at least once. High-cost beneficiaries were also much more likely to have been admitted to a hospital or a skilled nursing facility than were members of the low-cost group and to have been treated in a hospital emergency room during the year. The Persistence of Medicare If the goal of policymakers is to ultimately direct intervention strategies toward high-cost beneficiaries and change their use of Medicare services, it is important to consider patterns in Medicare spending over relatively long periods of time, not just over one year. Do individuals who make heavy demands on the Medicare program one year continue to do so in subsequent years? Or are HIGH-COST MEDICARE BENEFICIARIES Table 3. Characteristics of Medicare Beneficiaries in High- and Low-Cost Spending Source: Congressional Budget Office based on data from the Centers for Medicare and Medicaid Services. Note: Beneficiaries under age 65 include those who are entitled to Medicare benefits on the basis of a disability or end-stage renal disease. the high-cost beneficiaries changing each year? If there is high turnover among high-cost beneficiaries, intervention strategies designed to change their use of Medicare services could be difficult to implement successfully because the time available to affect their spending may be limited. Expenditure Patterns Over Time The transition of Medicare beneficiaries between highand low-cost status in two successive years is illustrated in Table 5. For Medicare beneficiaries who were high cost in 1997, nearly half (44 percent) were also in the high-cost category the next year, compared with one in six (17 percent) of low-cost beneficiaries. If the transition between cost categories was purely random, 25 percent of the survivors in each group would have been expected to be high cost in the second year. A look at the longer expenditure history of high-cost beneficiaries in 1997 provides additional insight into the per sistence of their high-cost status (see Figure 2). As discussed above (and indicated by the darkest bars in Figure 2), 44 percent of high-cost beneficiaries in 1997 had large Medicare spending again in 1998. That fraction dropped off in subsequent years, nearly reaching 25 percent four years later, in 2001. A similar spending pattern preceded high-cost beneficiaries' 1997 experience: nearly half of those who would be high cost in 1997 were high cost in 1996, and about one-quarter were high cost four years prior to 1997. HIGH-COST MEDICARE BENEFICIARIES Table 4. Use of Medicare Services by High- and Low-Cost Spending Groups, 2001 Source: Congressional Budget Office based on data from the Centers for Medicare and Medicaid Services. Note: As an example of how to read the information in this table, among the 74.8 percent of high-cost beneficiaries who had a short-term hospital admission, the mean number of admissions was 1.7. of acute health shocks several years in a row than have an episode or two in a given year and then recover. Therefore, high expenditures in one year are likely to decrease over time as expenditures regress to the mean in subsequent years. An examination of the spending patterns of Medicare beneficiaries reveals a second pattern: the quantitative importance of the subsequent death of high-cost beneficiaries. About 14 percent of beneficiaries with high Medicare expenses in a given year die during that year (see Figure 2). Within four years, that fraction accumulates to 40 percent. In general, impending mortality greatly increases the probability of an individual's incurring high costs regardless of his or her prior spending. Studies show that about one-quarter of total Medicare payments are for the typically expensive and intensive treatment received in a patient's last year of life, which often postpones death for only a short time. Indeed, the high mortality rate among high-cost beneficiaries reported in Figure 2 confirms that a sizable fraction of spending by high-cost beneficiaries is for people near death. But not all deaths result in high spending, nor do all high-cost beneficiaries die soon thereafter. Different trajectories of functional decline at 9 8 8. See Christopher Hogan and others, "Medicare Beneficiaries' Costs of Care in the Last Year of Life," Health Affairs, vol. 20, no. 4 (July/August 2001), pp. 188-195; and James D. Lubitz and Gerald F. Riley, "Trends in Medicare Payments in the Last Year of Life," New England Journal of Medicine, vol. 328, no. 15 (April 15, 1993), pp. 1092-1096. Although patients who die incur no further medical costs, they also offer little potential for cost savings if they had been targeted for an intervention strategy. Taking subsequent mortality into account, however, strengthens the empirical correlation of high spending over time. For high-cost beneficiaries in 1997 who did not die over the next four years, nearly one-half-instead of one-quarter-were high cost at the end of 2001. In Figure 2, the numbers of living high-cost and low-cost beneficiaries were roughly equal in each year from 1998 through 2001. Had there been no persistence in high medical expenses, only one-quarter of those beneficiaries would have been expected to be high cost during those years. 9. Moreover, because a patient's time of death is unpredictable (except perhaps in cases such as advanced cancer), it is only in hindsight that researchers can estimate which costs were associated with care at the end of the patient's life and which costs were associated with attempts to save the patient's life. 10. See June R. Lunney, Joanne Lynn, and Christopher Hogan, "Profiles of Older Medicare Decedents," Journal of the American Geriatrics Society, vol. 50, no. 6 (June 2002), pp. 1108-1112; and June R. Lunney and others, "Patterns of Functional Decline at the End of Life," Journal of the American Medical Association, vol. 289, no. 18 (May 14, 2003), pp. 2387-2392. The Concentration of Spending Given the presence of high end-of-life expenditures and the regression to the mean following a high-cost year, one might expect Medicare expenditures over a longer period to be less concentrated than annual expenditures tend to be. For the entire 1997 cohort of Medicare beneficiaries, that is indeed the case (see Figure 3). Compared with the distribution of annual expenditures reported in Figure 1, that cohort's five-year inflation-adjusted cumulative expenditures are somewhat less concentrated: the top 5 percent of beneficiaries, when ranked by five-year cumulative spending, accounted for 27 percent of total five-year Medicare spending from 1997 to 2001, compared with 43 percent for annual spending. Furthermore, the top 25 percent of beneficiaries accounted for 68 percent of total five-year spending, compared with 85 percent for annual spending. There is still a great deal of concentration of expenditures over five years, however, in part because a significant group of Medicare beneficiaries incurs high spending over an extended period. For beneficiaries whose cumula 11. That cohort is defined as beneficiaries who enrolled in the Medicare program as of January 1997 and who either remained enrolled for five years (until December 2001) or died. Beneficiaries who subsequently enrolled in a Medicare managed care plan were excluded. There were about 1.4 million beneficiaries in CBO's random sample of that cohort. tive 1997-2001 spending put them in the top 25 percent of all beneficiaries for that 60-month period, Figure 4 displays the distribution of the number of months in which they were in the top 25 percent of beneficiaries in terms of spending in that month. The median number of months is 22. In other words, about half of cumulatively high-cost beneficiaries had high monthly costs during 22 months or more of the 60-month period. That result could indicate that there may be time and opportunity to intervene to affect the use of Medicare services for a significant number of high-cost beneficiaries because they remain persistently high cost over an extended period. Prospectively Identifying Future Whether a strategy of focusing on high-cost beneficiaries could lead to significant reductions in overall Medicare spending would depend on two factors: the ability to identify individuals who will have high costs in the future, and the ability to mitigate those high costs. The existence of Medicare beneficiaries whose high spending persists over an extended period presents potential opportunities for intervention strategies. However, prospectively identifying such individuals could be difficult. A basic problem is that although researchers can identify characteristics or conditions that are prevalent among high-cost beneficiaries, many low-cost beneficiaries may also share the same characteristics. For instance, a number of chronic conditions were found to be highly prevalent among high-cost beneficiaries, and considerably less prevalent among low-cost beneficiaries. However, because the number of low-cost beneficiaries in this illustration is three times as large as the number of high-cost beneficiaries, the numbers of high-cost and low-cost beneficiaries with those conditions are much more similar (see Table 6). So while diabetes is nearly twice as prevalent among high-cost beneficiaries as it is among low-cost ones, the actual number of low-cost beneficiaries with diabetes greatly exceeds the number of high-cost beneficiaries with that condition. Therefore, any intervention strategy that focuses simply on beneficiaries with diabetes will include a large number of people who will not incur significant medical expenditures (at least soon thereafter). Even the most successful strategies for identifying highcost individuals will probably include some who will not turn out to be expensive. HIGH-COST MEDICARE BENEFICIARIES Figure 2. Expenditure History of Medicare Beneficiaries Who Constituted the Top 25 Percent in 1997 Source: Congressional Budget Office based on data from the Centers for Medicare and Medicaid Services. Illustrative Strategies for Identifying This section briefly considers three simple strategies for pro 2001 ple of randomly selected Medicare beneficiaries. (The selection criteria for all of those strategies also required that the beneficiaries still be alive in January 1998.)112 How the strategies fared is displayed in Table 7 on page 12. The share of the Medicare population included in each of the three selected groups ranged from 17 percent to 22 percent. To make the subsequent shares of spending by the groups more comparable, CBO adjusted the size of each group (by random assignment) to match the size of the smallest original group, or 17 percent of the overall Medicare FFS population. The group with a hospital admission had the largest average spending in 1997 (at $24,900), followed by the high-cost group (at $23,000) and the group with multiple chronic conditions (at $16,900). The reference group had $6,200 in average spending. The previously hospitalized group also had the 12. The selection criteria further required that beneficiaries be enrolled in Medicare's fee-for-service sector from 1997 to 2001, enabling analysts to track their spending over the entire five-year period |