Study finds substantial variations in health care spending at the local level

Health Care Costs and Financing

Mounting evidence shows wide geographic variations in health care spending not explained by patient characteristics. Some policymakers would like to see high-spending areas subjected to lower Medicare payments and other coverage limitations. A new study illuminates local health care spending patterns. It found substantial variations in health care spending at the local level. 

The researchers analyzed data on enrollment, pharmacy claims, and medical claims from a 5 percent random sample of Medicare beneficiaries. Each beneficiary was assigned to 1 of the 306 hospital referral regions (HRRs) in the United States. These are areas served by large tertiary care hospitals. Each beneficiary was further assigned to 1 of 3,436 hospital service areas (HSAs), which are located within HRRs. HSAs nest within HRRs and HSAs are smaller, local areas where residents use the community hospitals near them to receive most of their care. 

The researchers found substantial local variation in the use and spending for drugs and medical services in HRRs, including differences among HSAs within HRRs. Manhattan, NY, an HRR, had the highest drug spending, while Albuquerque, NM, another HRR, had the lowest. However, within Manhattan, the lowest spending HSA had lower spending than 25 percent of the HSAs in Albuquerque. Thus, many of the low-spending HSAs were situated in high-spending HRRs. Conversely, many of the high-spending HSAs were found in low-spending HRRs. 

In the case of drug spending, a little over half of the HSAs located within the highest-spending HRR quintile were in the highest-spending quintile of HSAs. Of the HSAs in the lowest-spending HRR quintile, 50.3 percent were in the lowest-spending HSA quintile. A similar pattern was found for non-drug medical spending. According to the researchers, policies aimed at HRRs may be too broad to promote wise health care spending and the best use of resources. 

The study was supported in part by AHRQ (HS18657). See "Comparing local and regional variation in health care spending," by Yuting Zhang, Ph.D., Seo Hyon Baik, Ph.D., A. Mark Fendrick, M.D., and Katherine Baicker, Ph.D., in the November 1, 2012, New England Journal of Medicine 367(18), pp. 1724-1731.

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Page last reviewed June 2013
Internet Citation: Study finds substantial variations in health care spending at the local level: Health Care Costs and Financing. June 2013. Agency for Healthcare Research and Quality, Rockville, MD. http://www.ahrq.gov/news/newsletters/research-activities/13jun/0613RA11.html