In 2006, Medicare spent almost 90 times more per capita on seniors in the top quintile as compared to the lowest quintile.

1. Medicare’s Highest Spenders In 2006, Medicare spent almost 90 times more per capita on seniors in the top quintile as compared to the lowest quintile? DataBrief Series ● October 2011 ● No. 24

3. In 2006, Medicare spent $198 billion on beneficiaries age 65 and older.2 However, this spending is distributed unequally among Medicare beneficiaries, with the highest spenders spending much more than the lowest spenders.

4. For Medicare beneficiaries age 65 and older, per capita Medicare spending in 2006 was $7,163; per capita Medicare spending on the lowest quintile (20%) was $331 per capita and on the highest quintile (20%) was $29,604.2

5. The highest quintile of older Medicare beneficiaries accounted for 74% of total Medicare spending ($147 billion) in 2006.2

6. 77% of seniors in the highest spending quintile had at least 3 chronic conditions; about a quarter of all seniors in the highest spending quintile had a functional impairment in addition to at least 3 chronic conditions.2

7. The presence of a functional impairment is linked to higher Medicare spending. Among those in the highest quintile, Medicare spent 33% more on those with chronic conditions and functional impairment than on those with chronic conditions only.1 Agency for Healthcare Quality and Research. The High Concentration of U.S. Medical Expenditures. June 2006. Accessed on September 30, 2011 at: http://www.ahrq.gov/research/ria19/expendria.pdf. 2Avalere Health, LLC. Analysis of the 2006 Medicare Current Beneficiary Survey, Cost and Use file. Excludes beneficiaries who died during 2006. Page 2 DataBrief (2011) ● No. 24

8. Medicare Spends Significantly More on Seniors with Chronic Conditions and Functional Impairment than on Others in the Top Quintile DataBrief (2011) ● No. 24 Page 3 Per Capita Medicare Spending for Selected Groups of Beneficiaries Age 65 and Over1 1 This analysis excludes beneficiaries who died during 2006. N = 24,754,479 beneficiaries with any spending, 4,950,896 beneficiaries per quintile, and 1,237,724 beneficiaries per 5% group.

9. A Clear Policy Connection This analysis is based on the 2006 Medicare Current Beneficiary Survey (MCBS) Cost and Use file, an annual, longitudinal survey of a representative sample of all Medicare enrollees. The MCBS collects information on functional limitations, health services utilization, and health spending. Individuals who indicated that they had ever been diagnosed with any of the following conditions, were considered to have chronic conditions: arthritis, Alzheimer’s Disease, broken hip, cancer (excluding skin), congestive heart failure, depression, diabetes, hypertension, mental illnesses (excluding depression), myocardial infarction and other heart conditions, osteoporosis, Parkinson’s Disease, pulmonary diseases such as emphysema, asthma and Chronic Obstructive Pulmonary Disease, and stroke. In this analysis, individuals who indicated that they received help or standby assistance with one or more Activities of Daily Living (ADLs) and/or three or more Instrumental Activities of Daily Living (IADLs) were considered to have functional impairment. This analysis is limited to individuals age 65 or older who were enrolled in the fee-for-service, or traditional, Medicare program. It excludes beneficiaries who had no health spending in 2006 or were enrolled in a managed care plan at any time during the year. These analyses also exclude Medicare beneficiaries who died during 2006. A small portion of Medicare beneficiaries account for a very large share of Medicare spending. The prevalence of multiple chronic conditions is higher among people in Medicare’s highest spending quintile. In addition, many high spenders have functional impairments that add to their health needs. Policymakers recognize that providing effective interventions for this relatively small group of high-cost beneficiaries could significantly reduce Medicare spending, as demonstrated by initiatives included in the Affordable Care Act (ACA). Indeed, innovative local health care delivery models targeting high-cost, high-utilization individuals have shown success in lowering utilization and costs. In Camden, New Jersey, a team of clinicians targeting the city’s highest-cost beneficiaries achieved a 40% reduction in costly hospital and emergency room visits. To reduce these visits, the team provided a 24-hour hotline, personal health coaches, and health education while using information technology to track patients.1 The Center for Medicare and Medicaid Innovation (CMMI), established by the ACA, has the authority to fund innovative delivery reform models. As the center evaluates various models to target the high-cost, high-utilization beneficiaries, it could benefit from understanding and incorporating the best practices gleaned from successful smaller-scale programs. 1 Gawande, A. The Hot Spotters. The New Yorker. January 24, 2011. DataBrief (2011) ● No. 24 Page 4