Geographic Variation in Medicare Spending

Medicare spending varies significantly between regions, according to a new report from Health Affairs.

While it is clear that spending on Medicare per beneficiary varies according to location, what causes that variation and can spending be reduced in high-cost areas? For example, in 2012, Medicare spent 2.5 times more per beneficiary in Miami, Florida ($15,957) than it did in Grand Junction, Colorado ($6,569).

– The same service does not cost the same under Medicare in every part of the country. Payment rates vary — a reflection of the cost of inputs in different areas, as well as differences in the characteristics of the particular health care provider.
– The health status of beneficiaries can contribute to differences in the use of services (and therefore Medicare spending), and health status varies between regions. Research by James D. Reschovsky found that up to 85 percent of differences in spending could be explained by patient health status.
– Other research has pointed to the environment as being primarily responsible for the differences. Patients in areas with “a higher intensity of services” tended to have more chronic illnesses on insurance claims. Researchers said that this indicates that the greater use of tests makes it more likely that doctors will identify a disease or sickness.

Ultimately, differences in spending remain unexplained. Notably, these spending pattern variations are specific to Medicare — private health care spending and Medicaid spending do not produce the same variations between areas.

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