The issue of geographic variation in health spending has long fascinated me and there has been great difficulty in explaining it. Much of the work is done on Medicare beneficiaries but it also covers Medicaid and commercial members. Even after removing most confounders, like health status ,there are regions with spending above the average and regions with spending below average. It may be tied to doctor education and to peer pressure–what are the prevailing practice patterns in an area. A new study compares variation in Medicare, Medicaid and among commercial payers. Somewhat astoundingly, there was little correlation in spending in an area across the payers. If physician practice patterns were responsible, you would think those would be applied across payers.
Spending can be decomposed into utilization and unit price. Utilization had a higher, although not high, correlation across payer types. This indicates that unit price is likely more of an impact on spending variation. Price may in turn be correlated with relative market power of providers and payers. Medicare and Medicaid set prices by fiat, but political influences can occur. Commercial prices are bargained. Both provider and payer markets have become quite concentrated, but there is some competition in most regions. Spending in this study by adjusted by age and sex but not health status and there are areas of the country that are more or less healthy, which clearly impacts spending.
Medicaid had the most spending variation across regions, which makes some sense because it is a largely state program, and states have very different prices they pay providers. Medicare had the least variation, which again makes sense as it is a national program with some limited price variation depending on cost structures in different parts of the country. Medicaid also had the greatest variation in inpatient hospital utilization, followed by Medicare and then private insurance. There was not clear evidence for big impacts on spending variation by any one factor. The study has some limitations in not including Medicare Advantage spending or separating Medicaid into its fee-for-service and health plan components. But as always, this is a fascinating area of research. (JAMA Study)