The Latest on Geographic Variation in Medicare Spending: A Demographic Divide Persists But Variation Has Narrowed
Previous research on geographic variation in Medicare spending suggested that wide variation in per capita spending was driven by differences in the supply of providers combined with an inappropriate profit orientation in some areas, and that the gap between high-spending and low-spending areas could be narrowed by policies that encourage providers in high-spending areas to behave more like providers in low-spending areas. More recent research has shown that the areas of the country with relatively high unadjusted Medicare per capita spending are marked by a confluence of poor health, high rates of poverty, and high prices. Thus, changing provider practice patterns may help to curtail spending growth and reduce variation in spending across counties but will not eliminate the abiding socioeconomic, demographic, and health disparities between the highest- and lowest-spending counties.
At the same time, our analysis shows that differences in county-level spending remain even after adjusting for differences in prices and beneficiary health status that affect Medicare per capita spending. In light of our finding that counties with the highest price- and health-risk adjusted per capita spending have a larger supply of certain types of providers, including post-acute care providers, the question remains whether higher spending in these areas is driven by medical practice styles or by demand for care from a relatively sicker beneficiary population, or some combination of both. Further research is needed to understand this relationship.
In recent years, policies have been implemented within Medicare that may have helped to curb some of the more notable excesses in high-spending areas of the country, and new efforts are underway in the program to change how providers deliver care and how Medicare pays for it. These activities include: an increased focus on program integrity in Medicare, with a special emphasis on high-fraud regions and services; a new competitive bidding program for durable medical equipment; a hospital readmission reduction program; the Medicare Shared Savings Program; and bundled payments for episodes of care. It is beyond the scope of this paper to quantify the extent to which these policies have affected geographic variation in Medicare per beneficiary spending, but our findings suggest that they may have played some role in the narrowing of variation.
The Affordable Care Act included a number of provisions designed to encourage greater efficiency in the delivery of care for Medicare beneficiaries by modifying incentives for providers to reduce excess costs and improve quality of care. Some of these initiatives may help to constrain the growth in per capita spending in all areas and further reduce the variation between the highest- and lowest-spending areas, but some regional differences are likely to persist due to profound differences in the health and socioeconomic characteristics of the Medicare population across the county, along with differences in the prices Medicare pays for services.
We gratefully acknowledge Anthony Damico for assistance with data analysis, and two external reviewers for valuable feedback on a draft of this report.