September 30, 2014

Geographic Variation in Health Care Spending

  • The American health care system is a patchwork of public and private programs that serve citizens in different ways, depending on their age, military...

The prestigious Institute of Medicine (IOM) released a long-awaited report last week on geographical variation in health care spending. The study, commissioned through the Affordable Care Act (health care reform law), was the government’s most thorough attempt to date to resolve a topic of substantial debate: To what degree does health care spending vary solely based on geography and local provider practice conditions and norms, as opposed to variation due to factors such as population age, sickness and socio-economic status?

The IOM found that significant variation in spending can be attributed to geographic differences -- affirming the work of the Dartmouth Institute, which has been arguing the case and presenting data on the topic since the 1970s.

The IOM study further found that for Medicare spending, most variation is due to post-acute services like nursing homes, home health care and long-term care. Removing the variation in those services explains about 73 percent of all geographic variation.

The IOM concluded that even with the presence of geographic variation, policymakers should not focus reform efforts on geographically based solutions, like regional rate setting. Instead, the focus should continue to be on changing incentives for providers to increase integration and coordination.