Patient Health Causes Substantial Portion of Geographic Variation in Medicare Costs

October 2013

Large geographic variations in Medicare costs have long been documented; however, the size and source of this variation has been the subject of dispute.  There are many factors that influence spending per Medicare beneficiary, including, perhaps most importantly, a patient’s health status. Consequently, casemix adjustment, or controlling for area population health, is critical to developing Medicare geographic cost variation estimates. In a HCFO-funded study, James Reschovsky, Ph.D., Center for Studying Health System Change, and colleagues examined and compared alternative approaches to casemix adjustment to inform the use of geographic variation estimates and to draw policy inferences. They found that population health drives much of the variation in Medicare spending and more comprehensive casemix controls account for greater portions of area cost variation. Their findings were published in October 2013 issue of Medical Care Research and Review.