More Than Just Microsoft

A thoughtful physician from Everett WA asked a perceptive question about the redistribution of Medicare payments from “low efficiency” to “high efficiency” areas, for example from South Bronx to Mayo, or, in the example that he gave, from Miami-Dade County to King County WA, the home of Microsoft. “Maybe I am wrong, but I think this was intended to reward high-quality, low-cost care.”  

You’re not wrong. That was the stated purpose. But it simply rewards wealth and penalizes poverty. Costs are lowest where poverty is least, and quality follows. It’s best where poverty is least. High poverty areas (like Miami) have poorer and sicker seniors (see the chart below). The opposite is true for wealthy places with little poverty, like Everett and the surrounding King County.

This is not to say that there’s not waste in Dade and efficiency in King. Both may be true. It’s just that the income effect is so large, it swamps the others.

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