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January 28, 2010
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Sue Ducat

What Drives Medicare Spending Variations? Some Surprising Results

Bethesda, MD - An article published today by Health Affairs finds an unexpected reason for disparities in per capita Medicare spending. The authors' findings suggest that utilization - not necessarily local price differences - can cause Medicare regional payment variations, along with special payments for medical education.

Prices Don't Drive Medicare Regional Spending Variations
By Daniel J. Gottlieb, Weiping Zhou, Yunjie Song, Kathryn Gilman Andrews, Jonathan S. Skinner, and Jason M. Sutherland


Gottlieb, Zhou, Song, and Skinner are affiliated with the Dartmouth Institute for Health Policy and Clinical Practice in Lebanon, NH; Andrews is at the Institute for Health Metrics and Evaluation in Seattle, WA; Sutherland is with the University of British Columbia; and Skinner teaches at Dartmouth College in Hanover, NH.

The authors analyzed Medicare claims from 2006 and combined all Medicare spending components to create an aggregated measure, adjusted for price, age, sex, and race, of expenditures for each Hospital Referral Region in the United States as defined by the Dartmouth Atlas of Health Care. They found that in general, adjusting for differences in what Medicare pays per service does not have a large impact on regional variations; these variations are still large. Miami, Florida, and McAllen, Texas, are the highest-spending regions, whether price-adjusted or not. They did pinpoint several areas where their adjustments mattered the most. Utilization rates for Manhattan and the Bronx were adjusted downward by a substantial degree, in part because of higher cost of living, but also because Medicare pays New York hospitals so much for graduate medical education. And despite these seemingly lower measures of Medicare utilization, New York City residents still spend a far greater-than-average number of days in the hospital during their last two years of life. Additionally, the authors concluded that "greater transparency in documenting regional differences in utilization, and regional differences in what the CMS pays providers, can help improve the efficiency and equity of the Medicare program."


Health Affairs, published by Project HOPE, is the leading journal of health policy. Beginning in January 2010, the peer-reviewed journal appears each month in print, with additional Web First papers published weekly at http://www.healthaffairs.org/. The full text of each Health Affairs Web First paper is available free of charge to all Web-site visitors for a two-week period following posting, after which it switches to pay-per-view for nonsubscribers. Web First papers are supported in part by a grant from The Commonwealth Fund.


©2010 Project HOPE–The People-to-People Health Foundation, Inc.