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Functional Disability and Health Care Expenditures for Older Persons
Terri R. Fried, MD;
Elizabeth H. Bradley, PhD;
Christianna S. Williams, MPH, MA;
Mary E. Tinetti, MD
Arch Intern Med. 2001;161:2602-2607.
ABSTRACT
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Background The rapidly expanding proportion of the US population 65 years and older
is anticipated to have a profound effect on health care expenditures. Whether
the changing health status of older Americans will modulate this effect is
not well understood. This study sought to determine the relationship between
functional status and government-reimbursed health care services in older
persons.
Methods Longitudinal cohort study of a representative sample of community-dwelling
persons 72 years or older. Clinical data were linked with data on 2-year expenditures
for Medicare-reimbursed hospital, outpatient, and home care services and Medicare-
and Medicaid-reimbursed nursing home services. Per capita expenditures associated
with different functional status transitions were calculated, as were excess
expenditures associated with functional disability adjusted for demographic,
health, and psychosocial variables.
Results The 19.6% of older persons who had stable functional dependence or who
declined to dependence accounted for almost half (46.3%) of total expenditures.
Persons in these groups had an excess of approximately $10 000 in expenditures
in 2 years compared with those who remained independent. The 9.6% of patients
who were dependent at baseline accounted for more than 40.0% of home health
and nursing home expenditures; the 10.0% who declined accounted for more than
20.0% of hospital, outpatient, and nursing home expenditures.
Conclusions Functional dependence places a large burden on government-funded health
care services. Whereas functional decline places this burden on short- and
long-term care services, stable functional dependence places the burden predominantly
on long-term care services. Declining rates of functional disability and interventions
to prevent disability hold promise for ameliorating this burden.
INTRODUCTION
PERSONS 65 YEARS and older currently comprise less than 13% of the US
population but account for more than 35% of total health care expenditures.1 The rapid growth of this segment of the population
and its increased demands on the health care system have led to concerns about
Medicare's financial solvency.2 A recent longitudinal
study3 of the effect of longevity on short-
and long-term care medical spending concluded that the growing number of people
older than 65 years, rather than their increasing longevity, will have the
largest effect on medical expenditures for the elderly. However, this study
did not examine the relationship between the health status of older persons
and their medical expenditures. As the population ages, it is also undergoing
changes in health status, leading to speculation that these changes may modulate
the effects of growing numbers of older persons on the health care system.4
The relationship between functional status and health care expenditures
may be a particularly important one. Functional status, as measured by activities
of daily living (ADLs), is a key component of the health status of older adults.
Functional status predicts many outcomes in older persons, including total
mortality,5-6 mortality among
hospitalized patients,7 recovery from intensive
care,8 and recovery from acute illnesses, such
as pneumonia.9
Although functional dependence has been associated with an increased
risk of nursing home placement10-11
and home health care use,12 studies have presented
varying findings about the relationship between functional status and the
use of short-term care services. Two studies13-14
demonstrated higher hospital use and cost among functionally dependent older
persons compared with independent persons. A third study15
found that dependence in advanced ADLs was associated with lower risk of hospitalization.
Despite these conflicting findings, functional status has been shown to be
a significant predictor of Medicare expenditures in studies16-17
examining risk-adjustment models for Medicare reimbursement. A recent study,18 using a population-based approach to compare observed
and predicted Medicare expenditures from 1992-1996, concluded that the growth
of per capita expenditures was lower than would be predicted in the absence
of a decline in functional disability over time.
A major limitation of the studies examining the relationship between
functional status and expenditures is that they have been limited to Medicare-reimbursed
services. Because functional disability is associated with the use of long-term
care services, for which the principal source of government expenditures is
Medicaid, an understanding of the effects of functional status changes on
government-funded health care requires an examination of Medicare and Medicaid
expenditures. Furthermore, the relationship between functional status and
Medicare expenditures may vary according to the different types of services
reimbursed by Medicare, such as hospitalization vs nursing home and home health
care. Finally, previous studies have not examined the effect of transitions
in functional status on health care expenditures. To determine the relationship
between these transitions and the full range of health care expenditures,
we used a longitudinal cohort of older persons for whom functional status
and other clinical data were matched to health care utilization. We examined
expenditures for the major government-reimbursed health care services, namely,
hospitalization, outpatient, home health care, and nursing home services.
PARTICIPANTS AND METHODS
PARTICIPANTS
Potential participants were members of a representative cohort of noninstitutionalized
persons 72 years and older living in New Haven, Conn, in 1989. The sampling
technique, described in detail elsewhere,19
drew from 3 housing strata: age- and income-restricted public housing, age-restricted
private housing, and housing from the remainder of the community. These individuals
were matched to the Medicare Provider Analysis and Review (MEDPAR) file, Home
Health Agency Standard Analytic File (SAF), and Outpatient SAF from the Health
Care Financing Administration. They were also matched to the Connecticut Long-term
Care Registry, which tracks the length of stay (LOS) and payer status for
skilled and intermediate nursing facility services in Connecticut.
Of 1436 potential participants, 44 (3.1%) were ineligible because they
did not speak English, Spanish, or Italian; could not follow simple commands;
or were not ambulatory within their own home. Of the 1392 eligible participants,
1103 (79.2%) agreed to participate. Of the 1103 cohort members, 81 were excluded
from our analysis because they could not be matched with their health care
use data owing to a missing social security and Medicare number. The 81 excluded
individuals did not differ significantly from study participants in terms
of race, housing type, educational level, cognitive status, or functional
status. Excluded individuals were more likely to be older than participants
(82.5 vs 80.6 years; P = .07) and to be women (76%
vs 64%; P = .09). An additional 179 individuals were
excluded because their functional status was not ascertained at either baseline
or follow-up interviews. These 179 individuals did not differ from participants
according to age, race, sex, housing type, or educational level. The resulting
sample included 843 participants.
FUNCTIONAL STATUS
Functional status was obtained from baseline interviews performed between
September 1, 1990, and August 31, 1991, and from follow-up interviews conducted
2 years later. Functional status was measured by self-report of 7 basic ADLs:
bathing, dressing, transferring, walking, eating, toileting, and grooming.20 The following set of variables was created to measure
baseline functional status and functional status transitions: "Stable independence"
indicates independence in all ADLs at baseline and at follow-up. "Stable difficulty"
indicates difficulty in at least 1 ADL at baseline and at follow-up. "Stable
dependence" indicates dependence in at least 1 ADL at baseline and at follow-up,
with dependence defined as requiring personal assistance. "Decline to difficulty"
indicates independence in all ADLs at baseline and difficulty in at least
1 ADL at follow-up. "Decline to dependence" indicates independence in all
ADLs at baseline with or without difficulty and dependence in at least 1 ADL
at follow-up. "Improved" indicates a better functional status at follow-up
compared with baseline. "Died" indicates that the participant died before
the follow-up interview, regardless of initial functional status.
COVARIATES
Additional independent variables obtained from baseline interviews were
chosen as factors potentially associated with health care expenditures, as
suggested in previous studies.13-17
These variables included age; sex; race; housing type (community vs age restricted);
marital status (married vs never married, widowed, or divorced); self-rated
health ("How would you rate your health at the present time?" answered as
"excellent," "good," "fair," "poor," or "bad") analyzed as a continuous variable;
cognitive impairment (Folstein Mini-Mental State Examination score <24)21; depression (Center for Epidemiologic Studies Depression
Scale score  16)22; availability of instrumental
and emotional social support ("When you need some extra help, can you count
on anyone to help with daily tasks?" and "Can you count on anyone to provide
you with emotional support?"); and self-report of comorbid conditions, including
cancer, diabetes mellitus, history of myocardial infarction, and history of
stroke.
HEALTH CARE EXPENDITURES
Because we were interested in the economic burden of health care on
the government, we examined the amount reimbursed by Medicare and Medicaid
between the baseline and follow-up interviews, the same period during which
functional status was measured. Files from the Health Care Financing Administration
were used to determine Medicare use and cost. The MEDPAR file provided hospital
and Medicare-reimbursed nursing home use and cost. The Home Health Agency
SAF provided home health care use and cost, and the Outpatient SAF provided
use and cost of outpatient services, including emergency department visits,
physical therapy, and outpatient diagnostic and therapeutic procedures.
Participants were matched to each Health Care Financing Administration
file according to Medicare or social security number, sex, and date of birth
within 10 years. This matching algorithm was validated against a more complex
algorithm used in a previous study in which a match was required for Medicare
or social security number, sex, race, age within 1 year, state of residence,
and location of residence. If 1 or more items disagreed, other information,
such as self-report of hospital use, was used to attempt to validate the match.23 For the MEDPAR data, the 2 methods provided the same
match for 1733 of 1736 episodes of use.
The state-mandated Connecticut Long-term Care Registry, which tracks
the LOS and payer status for skilled and intermediate nursing facility services
in Connecticut, was used to determine nursing home reimbursement by Medicaid.23 Participants were matched to data in the registry
according to social security number, name, birth date, sex, and race. Because
reimbursements are not included in the registry, we used the average daily
allowable charge to Medicaid for each calendar year examined in the study,
provided by the Connecticut Department of Social Services, and multiplied
this charge by the LOS. For participants whose stay spanned more than 1 calendar
year, LOS in each year was calculated, and the average daily rate for that
year was applied. Payer status was reported only at the beginning and end
of each nursing home stay. If the source of payment changed from Medicare
to Medicaid, then the Medicare-reimbursed LOS was determined from the MEDPAR
file and the rest of the stay was assumed to be reimbursed by Medicaid. If
the source of payment changed from self-pay to Medicaid, then half of the
stay was assumed to be reimbursed by Medicaid.
All expenditures are stated in 1993 constant dollars. A monthly deflator
was used, based on the Medical Care Component of the Consumer Price Index.
For services lasting longer than 1 month, the deflator for the month at the
midpoint of the service was used.
STATISTICAL ANALYSIS
All analyses were weighted to reflect the target population by using
statistical software24 because of the stratified
sampling technique used to assemble the cohort. The weighted proportions,
weighted total costs, and weighted costs of the individual health services
were calculated for each functional status group.
Because large proportions of persons in each functional status group
did not use a given health care service, they had zero expenditures for that
service. Therefore, expenditures independently associated with functional
status were modeled in a 2-step process. Expenditures for a given service
by individuals in a functional status group were modeled as conditional on
use of the service. Adjusted probabilities of health care service use by individuals
in a functional status group were obtained from multivariable logistic models
of use, including all covariates associated with use in bivariate analysis
(P<.10). Expenditures were log transformed to
normalize their distribution, and adjusted expenditures were obtained from
multivariable ordinary least squares models, including all covariates associated
with expenditures in bivariate analysis with P<.10.
For each functional status category, per capita excess (or decreased)
expenditures relative to the stable independence group were calculated for
each health care service using a technique described in previous studies23, 25 of the economic impact of illness.
This technique involved weighting expenditures by the probability of use of
the service by individuals in the functional status group (as distinct from
weighting for the study design). Briefly, per capita excess (decreased) expenditures
for a functional status group were calculated as the weighted mean expenditures,
conditional on use of that service, for a particular health care service minus
the weighted conditional mean expenditures of the stable independence group
for the same health care service. To obtain more stable estimates for use
and expenditures of nursing home services, given the small number of nonfunctionally
dependent participants who used these services, the stable independence and
improved categories were combined, as were the stable difficulty and decline
to difficulty categories.
RESULTS
The 843 participants had a mean ± SD age of 80.6 ± 0.3
years; most were women (63.7%) and white (86.3%). Participants had a mean
± SD level of education of 9.8 ± 0.2 years, and 37.6% were married.
Most participants (79.0%) lived in community housing, 15.0% lived in private
elderly housing, and 6.0% lived in public elderly housing. As given in Table 1, the 9.6% of participants who were
dependent in at least 1 ADL at both baseline and follow-up comprised 22.5%
of the total Medicare- and Medicaid-reimbursed costs incurred by all participants
in the study. The 10.0% of participants who declined to dependence in at least
1 ADL accounted for 23.8% of total reimbursed costs. Taken together, these
groups composed 20.0% of the total cohort, fewer than half the proportion
of those who were independent, but accounted for roughly twice the total expenditures
of the independent group.
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Table 1. Proportion of Expenditures Relative to Proportion of Population
for Each Functional Status Group
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Table 2 demonstrates that
individuals with stable functional dependence and those with a decline to
dependence accounted for different proportions of the total expenditures of
each of the health care services. Those who had a stable dependence (9.6%
of participants) accounted for 7.2% of hospital expenditures and 10.8% of
outpatient expenditures but 44.3% of home health expenditures and close to
half of nursing home expenditures. In contrast, those who had a decline to
dependence (10.0% of participants) accounted for 20.2% of hospital expenditures,
24.6% of outpatient expenditures, 17.2% of home health expenditures, and 34.0%
of nursing home expenditures.
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Table 2. Proportion of Expenditures by Functional Status Group Within
Each Health Care Service
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The effect of functional status on use of each of the 4 health care
services is given in Table 3.
Even after adjustment for sociodemographic factors, depression, cognitive
status, self-rated health, and comorbidities, stable functional dependence
and decline to dependence were significantly associated with use of hospital,
home health, and nursing home services relative to independence. Decline to
dependence but not stable dependence was significantly associated with use
of outpatient services. Stable difficulty and improvement in function were
also associated with use of home health services. In each model of use, the
magnitude of the association between functional status and use was greater
than for any of the covariates.
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Table 3. Association Between Functional Status, Sociodemographic, Psychosocial,
and Comorbidity Variables and Use of Health Care Services
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The effects of functional status on per capita expenditures during the
study (approximately 2 years) are displayed in Table 4. Persons who had stable dependence or a decline to dependence
had excess expenditures of approximately $10 000 compared with those
who had stable independence. Among those with stable dependence, almost three
quarters of the excess expenditures (73%) were attributable to nursing home
care. Among those who had a decline to dependence, almost half of the excess
expenditures (46%) were attributable to hospitalization and an additional
43% to nursing home care.
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Table 4. Effects of Functional Status on Per Capita Expenditures: Excess
(Decreased) Expenditures Relative to Stable Independence
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COMMENT
The results of this study demonstrate that the burden of functional
disability on government-reimbursed health care services is substantial. In
this community-based sample of older persons, the 20% of participants who
were functionally dependent at baseline or who developed functional dependence
in 2 years accounted for almost 50% of Medicare hospital, outpatient, and
home health and Medicare and Medicaid nursing home expenditures. Although
the association between functional disability and health care use has been
well established, the magnitude of the burden of functional disability on
total health care expenditures and on expenditures for short vs long-term
care services has not been examined. Compared with those who had stable independence,
persons in each of these 2 dependent groups incurred additional expenditures
of approximately $10 000 in 2 years.
The independent association between functional status and health care
use argues that functional status may be one of the best measures of health
status in the examination of health care expenditures. Compared with sociodemographic,
psychosocial, and diagnosis variables, functional status demonstrated the
strongest association with use of hospital, outpatient, home health, and nursing
home services. Although measurement of comorbidities in the present study
was limited to self-report, the accuracy of self-reported diagnoses leading
to hospitalization has been demonstrated to be moderate to good for the diagnoses
of ischemic heart disease, stroke, and a variety of cancers.26
It is possible that more sophisticated measures of comorbidity might perform
better to predict use, as functional status measures and more complex comorbidity
measures have been shown, for example, to be complementary predictors of hospital
mortality.7 However, as a more easily obtained
self-reported measure, the strength of the association between functional
status and expenditures demonstrates its utility as a summary measure of health
status.
The excess expenditures associated with a decline in functional status
highlight the important effect of individuals' functional status transitions
on government health care expenditures. As shown in previous studies,16-17 baseline functional disability was
associated with increased health care expenditures compared with functional
independence. In addition, this study demonstrates an equally large economic
burden associated with functional decline. Whereas stable dependence was associated
with predominantly long-term care expenditures, functional decline was associated
with both short- and long-term care expenditures. This distribution of expenditures
has several implications for interventions to decrease the high costs associated
with functional disability. To the extent that the expenditures associated
with stable dependence represent basic care needs, these expenditures may
be resistant to intervention. In contrast to the extent that short-term care
expenditures are modifiable, interventions directed toward those at greatest
risk for functional decline may reduce the economic burden of disability.
At the very least, the high costs associated with decline suggest that interventions
designed to prevent disability can be cost-effective. An example of such a
cost-effective intervention is a home-based strategy to prevent falls, which
are associated with declining functional status,27
among community-dwelling elderly persons.28
The excess hospital expenditures associated with functional decline also suggest
the potential cost-effectiveness of hospital-based interventions, which have
been demonstrated to prevent functional decline.29
Because current projections of future Medicare and Medicaid spending
are based only on the estimated number of older persons in future years and
not on their health status,30 it has been hypothesized
that because of declining disability in older persons, these projections may
be overly pessimistic.4 A recent population-based
study18 estimated a modest per capita saving
on Medicare expenditures ($98 in 4 years) associated with the decline in disability.
Our finding of the excess long-term care expenditures associated with disability
suggests that the savings to Medicare and Medicaid combined may be even larger.
The relationship between disability trends and future government health care
expenditures is likely to be complex, affected not only by change in disability
itself but also by the effect of this change on life expectancy and subsequent
effects on health care use. Nonetheless, the relationship among functional
status, functional status transitions, and Medicare and Medicaid expenditures
argues that projections of expenditures could be improved with incorporation
of functional status measures.
This study has several limitations. First, although our study includes
a much broader range of service expenditures than do previous studies, data
were not available for several services, namely, physician services and durable
medical equipment. Second, Medicare expenditures for managed Medicare recipients
were excluded from the study because the Health Care Financing Administration
does not have claims data for these patients. In 1993, however, less than
3% of Connecticut's Medicare beneficiaries belonged to managed Medicare plans,31 so this omission is unlikely to have affected our
results. Third, this cohort represents only one geographic area, and results
may differ in other parts of the country. Finally, because of the changing
health care environment, the distribution of expenditures for functionally
dependent patients may be different today than it was during the study. Current
shorter hospital stays and attempts to limit the use of Medicare home health
care services may mean lower expenditures attributable to these services.
However, the burden of functional dependence in terms of total expenditures
is not likely to have changed, given the demonstration of the frequent substitution
of nursing home services when other health care services such as hospitalization
are curtailed.32
By examining a community-based cohort for whom detailed demographic,
clinical, and social support data were available, we demonstrate an independent
association between disability and increased government-reimbursed expenditures
for health care. Declining rates of functional disability and interventions
designed to prevent disability may hold promise for ameliorating the projected
burdens placed on Medicare and Medicaid spending by the aging population.
AUTHOR INFORMATION
Accepted for publication April 9, 2001.
This work was supported by grants R03AG015624 and P60AG10469 (the Claude
D. Pepper Older Americans Independence Center of Yale University) from the
National Institute on Aging; a Career Development Award from the Veterans
Administration (Dr Fried); and a Paul Beeson Physician Faculty Scholars Award
(Dr Fried).
We thank John O'Leary, MA, for his meticulous data management.
Corresponding author and reprints: Terri R. Fried, MD, Geriatrics
and Extended Care 240, West Haven Veterans Affairs Connecticut Healthcare
System, 950 Campbell Ave, West Haven, CT 06516 (e-mail: terri.fried{at}yale.edu).
From the Clinical Epidemiology Unit, West Haven Veterans Affairs Connecticut
Healthcare System (Dr Fried); and the Departments of Medicine (Drs Fried and
Tinetti and Ms Williams) and Epidemiology and Public Health (Dr Bradley),
Yale University School of Medicine, New Haven, Conn.
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Medicare and Medicaid Home Health and Medicaid Waiver Services for Dually Eligible Older Adults: Risk Factors for Use and Correlates of Expenditures
Fortinsky et al.
Gerontologist 2004;44:739-749.
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Burden of Illness in Cancer Survivors: Findings From a Population-Based National Sample
Yabroff et al.
JNCI J Natl Cancer Inst 2004;96:1322-1330.
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Skeletal Muscle Cutpoints Associated with Elevated Physical Disability Risk in Older Men and Women
Janssen et al.
Am J Epidemiol 2004;159:413-421.
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Diabetes, Major Depression, and Functional Disability Among U.S. Adults
Egede
Diabetes Care 2004;27:421-428.
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Editorial: Hot Topics in Geriatrics
Morley
J. Gerontol. A Biol. Sci. Med. Sci. 2003;58:M30-36.
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