Regional Variation in Medicare Spending and Utilization: A Historical View

Presenter: Zijun Wang, Texas A&M University

Abstract

Rationale: There is increasing agreement in the literature that regional variations in Medicare spending and utilization are substantial and persistent. Cost-saving measures such as reducing regional variations may provide temporary relief for Medicare’s financing problem. Nevertheless, current empirical evidence on these points is predominantly derived from cross-sectional studies at the clinical or hospital level.

Objective: This study uses the Continuous Medicare History Sample (CMHS), a large longitudinal 5% sample of all US Medicare beneficiaries from 1974 to 2003, to systematically study the issue at the state level.
Results: We show that the spending and utilization disparities are significant even at the more aggregated state level. More importantly, the data show that variations in Medicare spending between states narrow over time, particularly in the earlier years of the sample period and in years following major reforms. The trends in variation are more mixed when considering utilization measures based on the component medical services covered by Medicare. We also find that the variations in both spending and medical resource utilization remain significant even if an array of demographic, demand side and supply side variables are controlled for, although there is evidence of conditional convergence in utilization of the subcomponents with the exception of hospital inpatient short stays.