Money mystery at Medicare.(the Medical Economist)

Medicare, which pays health care expenses for elderly Americans, is nearing a breaking point, with spending levels threatening to overwhelm the system sometime in the next two decades. In response to the impending crisis, Congress recently announced a whopping 13.5 percent increase next year in Medicare premiums. And, as part of the new prescription--drug benefit, Congress has decided for the first time to "means test" Medicare program--requiring wealthier senior citizens to make higher payments.

But further compounding Medicare's looming insolvency is the prescription--drug benefit, which could add $400 billion of costs to the already overloaded program over the next decade. As a result of all this financial pressure, there is suddenly renewed interest among economists in examining the efficiency of Medicare spending.

One of the best indications that there is room for redirecting Medicare spending up or down is the fact that regional spending for Medicare across the country is wildly uneven. For years this has been explained away by localized lifestyle differences. For example, even though Utah and Nevada are adjacent states with similar climates, it doesn't take a doctor or sociologist to notice the glaring differences in lifestyle that account for Nevada's much higher rates of cancer and heart disease--which lead to higher per capita Medicare spending.

But cultural differences can't explain all of the glaring discrepancies in spending. According to a new study by John Wennberg, Elliott Fisher, and Jonathan Skinner of the Dartmouth Medical School, Medicare costs per capita are two and a half times as high in Miami as in Minneapolis. Say the researchers: "The difference in lifetime Medicare spending between a typical 65-year-old in Miami and one in Minneapolis is more than $50,000, equivalent to a new Lexus GS 400 with all the trimmings."

There is no difference in the prices of medical services in those two cities. Nor is there any considerable difference in levels of illness to explain such a shocking discrepancy. What does account for the higher spending in Miami is the heavier amount of medical services performed.

According to the Dartmouth study, this reflects differences like physicians ordering more tests, more referrals to specialists, more frequent hospitalizations, and longer stays. Discretionary decisions ...