Geographical Differences In Health Spending Due To Socio-Economic Differences And Not Due To Medical Practice Style Differences

Posted by Milton Recht:

From The Federal Reserve Board, Finance and Economics Discussion Series, "Why the Geographic Variation in Health Care Spending Can't Tell Us Much about the Efficiency or Quality of our Health Care System" by Louise Sheiner:

This paper examines the geographic variation in Medicare and non-Medicare health spending and finds little support for the view that most of the variation is attributable to differences in practice styles. Instead, I find that socioeconomic factors that affect the need for medical care, as well as interactions between the Medicare system, Medicaid, and private health spending, can account for most of the variation in Medicare spending. Furthermore, I find that the health spending of the non-Medicare population is not well correlated with Medicare spending, suggesting that Medicare spending is not a good proxy for average health spending by state.***More broadly, the paper shows that the geographic variation in health spending does not provide a useful measure of the inefficiencies of our health system. States where Medicare spending is high are very different in multiple dimensions from states where Medicare spending is low, and thus it is difficult to isolate the effects of differences in health spending intensity from the effects of the differences in the underlying state characteristics. I show, for example, that the relationships between health spending, physician composition and quality are likely the result of omitted factors rather than the result of causal relationships. [Emphasis added.]

Full 56-page research paper for those interested.