Evidence on the Efficacy of Inpatient Spending on Medicare Patients

Context: It is widely believed that a significant amount, perhaps as much as 20 to 30 percent, of health care spending in the United States is wasted, despite market forces such as managed care organizations and large, self-insured firms with a financial incentive to eliminate waste of this magnitude. Methods: This article uses Medicare claims data to study the association between inpatient spending and the thirty-day mortality of Medicare patients admitted to hospitals between 2001 and 2005 for surgery (general, orthopedic, vascular) and medical conditions (acute myocardial infarction [AMI] congestive heart failure [CHF], stroke, and gastrointestinal bleeding). Findings: Estimates from the analysis indicated that except for AMI patients, a 10 percent increase in inpatient spending was associated with a decrease of between 3.1 and 11.3 percent in thirty-day mortality, depending on the type of patient. Conclusions: Although some spending may be inefficient, the results suggest that the amount of waste is less than conventionally believed, at least for inpatient care.