Why Geographic Variation in Medicare Spending Matters

Kelly Van Ochten, for HealthLeaders Media, December 6, 2010

While many investigative efforts have unequivocally shown that healthcare spending variation exists across geographic regions in the U.S., the causation and effects of this variation have remained at the forefront of healthcare research. Current political efforts are focusing on understanding research endeavors that highlight the causes of geographic disparities in healthcare spending.

Amendments to the healthcare bill that was passed in March will fund more analysis of geographic variation and potential policy changes that encourage hospitals to run more efficiently. It is important to understand the ongoing research of geographic variation as policies and regulations may soon begin to affect many in the healthcare field.

Two Schools of Thought
Certain researchers claim that much of the variation in healthcare spending can be explained by inconsistent actions taken by physicians. Some physicians may order tests, referrals, and procedures that do not necessarily provide a considerable benefit to the patient. These practices have the potential to be changed, inspiring talk for policy that would encourage physicians to curb "wasteful" spending. On the other hand, another group of researchers argue that most of the discrepancy is due to varying demographic conditions such as socioeconomic factors and health issues. Consequently, according to this school of thought geographic variation in healthcare spending not only exists, but it is also unavoidable if we are to ensure fair and equal healthcare.

Atul Gawande
In June 2009, the issue of variation in healthcare spending was drawn to the attention of a larger audience in a New Yorker article by Atul Gawande, MD, "The Cost Conundrum", in which he discusses the high Medicare expenditures in the poor, border town of McAllen, Texas.

Surprisingly, Gawande discovered that while the per capita costs of healthcare in McAllen (and many other regions of the country) are much higher than average, they do not have better reported outcomes. Building on these results, the author challenges the necessity of these inflated healthcare costs, arguing that physicians may be ordering medical procedures and tests in excess.

Such practices, Gawande writes, drive up the costs, and profits, associated with healthcare. In the wake of these findings he suggests that physicians in high spending regions are motivated by perverse incentives since current reimbursement models tend to reward the "overuse" of medical resources. This article received national attention as President Obama made it required reading for the White House health reform team.


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