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Unformatted text preview: 393 American Economic Review: Papers & Proceedings 2011, 101:3, 393–397 http://www.aeaweb.org/articles.php?doi = 10.1257/aer.101.3.393 The large geographic variation in Medicare spending has garnered a great deal of attention in the health reform debate, largely because it is viewed as evidence of expensive inefficiencies in spending on public insurance. Analysis of this variation, however, has mainly been based on only a subset of total Medicare spending, because information on pharmaceutical spend- ing has not been available until recently ( Zhang, Baicker, and Newhouse 2010a ) . This made it impossible to know whether the observed varia- tion was overstated ( because greater drug utili- zation substituted for other medical spending ) or understated ( because higher medical spending, reflecting a more intensive medical style, was associated with higher prescribing ) . Using Medicare data on both drug and medi- cal ( nondrug ) spending for traditional fee-for- service enrollees, we examine the relationships between spending on different types of health care across the 306 market areas, or Hospital Referral Regions ( HRRs ) , as defined by the Dartmouth Atlas ( Dartmouth Atlas Project 2011a ) . We examine both the quantity of spend- ing on pharmaceutical and other medical spend- ing and several measures of the quality and value of that spending. This allows us to gauge not only the total variation in spending but also the degree to which additional spending on drugs reflects potentially efficient substitution of inputs into health production versus inefficient practice style intensity that produces neither better health outcomes nor offsetting savings in Are Drugs Substitutes or Complements for Intensive ( and Expensive ) Medical Treatment By Yuting Zhang, Joseph P. Newhouse, and Katherine Baicker* * Zhang: Department of Health Policy and Management, University of Pittsburgh, 130 De Soto St., A664 Crabtree Hall, Pittsburgh, PA 15261 ( e-mail: [email protected] ) ; Baicker: Department of Health Policy and Management, Harvard School of Public Health, 677 Huntington Ave., Boston, MA 02115 ( e-mail: [email protected] ) ; Newhouse: Harvard Kennedy School; Department of Health Care Policy, Harvard Medical School; Department of Health Policy and Management, Harvard School of Public Health; and NBER ( e-mail: [email protected] ) . During the study period, Zhang was supported by NIMH ( RC1 MH088510 ) and AHRQ ( R01 HS018657 ) . other medical inputs. For example, do Medicare beneficiaries in areas with higher spending on pharmaceuticals designed to control chronic conditions have fewer physician visits, reducing variation in total spending relative to medical spending, or do they have more physician visits where they are given more prescriptions, ampli- fying the variation in medical spending? In addi- tion, we examine the extent to which patterns of enrollment in Medicare Advantage ( MA ), the managed care alternative to traditional fee-for-...
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- Fall '11
- medical spending, drug spending