Geographic Variation in Health Care Spending

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In a recent report, the Congressional Budget Office found that Medicare spending varies significantly by geographic region, even after controlling for differences in demographics, treatment preferences, and regional prices of medical services. The authors cite three possible reasons for the residual geographic variation in Medicare spending: (1) disagreement among medical professionals regarding the appropriateness of some treatments, (2) differences in the providers’ financial incentives, and (3) geographic variation in the supply of physicians. Whatever the reason, this geographical variation in Medicare spending implies that there are substantial inefficiencies in our healthcare system, raising concerns that federal taxpayer money may not be equitably distributed through Medicare’s current reimbursement scheme.

Posted by Wilbur Hu, CTHPP Policy Fellow