12% of Medicare spent during last two months of life.

In a landmark study entitled USA, Inc., the authors examine the US economy as if it were a public company. The story appeared on the February 24, 2011 cover of Bloomberg Business Week. Read the article here, but if you really want to get a wake up call, download the complete 266 page 460 slide presentation that goes into great detail analyzing the problems and potential solutions facing USA Inc. Of particular interest to those practicing estate planning is this astounding statistic: approximately 28% or $101,000,000,000 of the total Medicare recipient spending for 2008 occurred during the final two months of life.*

*Sources: CMS, Medpac, Report to the Congress: Medicare Payment Policy, 3/10

The Wall Street Journal’s online Health Blog post on March 15th titled “A Push for Better End-of-Life Planning” reports that only about a third of Americans have some form of advance directive such as a living will or a medical power of attorney. This is due to many reasons: lack of understanding of the legal or medical terms (the average American reads at only an 8th grade level), poor access to legal advice, and procrastination, among others that we in the estate planning field see all too often.

According to the post, Rebecca Sudore, a physician at UCSF and the San Francisco Veterans Administration Medical Center, says patients need to be able to work with medical professionals well in advance of any end-of-life decisions to clarify their goals and values, which may change over time. The most important decision: choosing a surrogate decision-maker and letting that person know your preferences. Research has shown that “half the time, the surrogate doesn’t know they were even chosen to make these momentous end-of-life decisions on someone else’s behalf, and has no idea what the person would want,” Sudore says.

One model for advanced care planning gaining adherents around the world was developed at Gunderson Lutheran Health System in La Crosse, Wisc.,  where trained case managers work with patients suffering from advanced illness to create and store end of life plans in electronic medical records. Gunderson’s research shows that the program could reduce the utilization of unwanted acute-care services — and their costs — by 25% to 50%.

Extrapolate these savings to the $101B that is spend during the final two months of life, and we’re talking about some real cuts into a bloated Medicare system. I certainly am not suggesting the abandonment of real efforts to save or sustain life. But as the USA Inc. study reports, “When citizens don’t need to pay directly for something (like healthcare) and are given an expensive good / service for free (or well below cost), they tend to consume more of it – it’s basic supply and demand economics.” I would go further and say that when hospitals and physicians receive nonstop reimbursements from Medicare for end of life services, they tend to provide more of it – it’s basic profit margin economics.