Abstract
Medicare accounts for 17% of the United States (U.S.) annual budget, a total of $585.7 billion (California Health Care Foundation, 2013). Within that, there are large geographical variations in per capita Medicare spending. Two aims are pursued related to the observed dissimilarities: to assess some of the potential drivers in the spending variation, and second, to look at the relationship between spending and the mortality rate as a model of efficiency. Using the presence of university hospitals as a representation of technologically advanced, innovative healthcare centers, this study seeks to determine their role in explaining the variation in Medicare expenses. The results suggest that university hospitals are more prone to have higher readmission rates, more intensive care and contribute an additional 2.0% to per capita Medicare spending. University hospitals are then used as an instrument to model the connection between Medicare spending and the mortality rate. While the instrument corrects for inherent endogeneity due to reverse causality, the results are insignificant for spending as a determinant of mortality outcomes. This inconclusive result points to the possibility that Medicare is operating past the point of optimal efficiency or that something other than spending is impacting the mortality rate. As a last investigation, the impact of the Patient Protection and Affordable Care Act (PPACA) on Medicare spending and survival was assessed. Both spending and mortality in the Medicare population have fallen since 2010 when the PPACA was enacted. The cost of an additional survival year was modeled as a function of the enactment of the PPACA and relevant covariates. Initial findings demonstrate that the PPACA has decreased the cost of an additional year of survival by 4.4%.