Stories

The shift in Medicare spending

Medicare is the largest purchaser of health care services in the country, and over the past decade, there's been a gradual change in how those taxpayer dollars are spent, according to data from the independent Medicare Payment Advisory Commission.

Since 2006, Medicare is shifting money from physician practices and inpatient hospitals (where a person needs an overnight stay), and toward private health insurers and other companies that run the Medicare Advantage and Part D prescription drug programs. Spending also has increased in outpatient settings.

Why it matters: The Affordable Care Act contributed to some of this shift by cutting Medicare payments to hospitals. But what's happening in Medicare is representative of the health care system at large: the shift to defined benefits and narrow networks of hospitals and doctors, and avoiding hospitalizations whenever possible.

Where more Medicare funds are flowing:

  • Medicare Advantage: Roughly 20 million seniors and disabled people are now enrolled in the politically popular program, which represents 27% of all Medicare dollars. Seniors give those plans high marks, and it's a profitable business for insurers. But there are concerns that Medicare Advantage isn't saving money and that insurers are gaming the program.
  • Part D: The growth of drug prices has blown away the growth of pretty much every other economic good, and Medicare is barred from negotiating discounts with manufacturers. That inevitably has resulted in more money going into the Part D program (14% of all Medicare spending), and the benefits managers that run it.
  • Outpatient hospital departments and clinics: Technology has made it possible for Medicare enrollees to get some procedures and go home the same day, and it's cheaper than treating someone in the hospital. But hospitals also have been buying physician offices and controversially converting them into hospital outpatient departments, resulting in higher fees for the same services.