Prices don't drive regional Medicare spending variations

Abstract

Per capita Medicare spending is more than twice as high in New York City and Miami than in places like Salem, Oregon. How much of these differences can be explained by Medicare's paying more to compensate for the higher cost of goods and services in such areas? To answer this question, we analyzed Medicare spending after adjusting for local price differences in 306 Hospital Referral Regions. The price-adjustment analysis resulted in less variation in what Medicare pays regionally, but not much. The findings suggest that utilization-not local price differences-drives Medicare regional payment variations, along with special payments for medical education and care for the poor.

EXHIBIT 2. Total Per Capita Medicare Reimbursements At The Hospital Referral Region (HRR) Level, Adjusted And Not Adjusted For Price, 2006

source Data are from the authors' analyses of 2006 Medicare data and represent annual per capita expenditures and price-adjusted expenditures, reflecting regional differences in age, sex, and race. note For details on the adjustment methods, see text.