Regional variation in Medicare spending is striking. Among the 306 hospital referral regions in the United States, Medicare reimbursements varied more than threefold in 2007, from about $5,200 per enrollee in the lowest spending region to more than $17,000 in the highest spending region. From 1992 to 2006, total Medicare spending grew at an average rate of 3.5% per year, but this growth was not also spread evenly across regions. The rate of average annual growth varied from a low of 1.6% in Honolulu to a high of 8.3% in McAllen, Texas. These findings have important implications for health policy and the goal of achieving sustainable and affordable health care for all Americans.
Dartmouth Atlas Medicare reimbursement rates are calculated from the Continuous Medicare History Sample (CMHS) from CMS. The file documents reimbursements by calendar year for each component of the Medicare program. The data are for a random 5% sample of Medicare enrollees selected on the basis of the terminal digits in the Social Security number.
Fee-for-service patients enrolled in Medicare Parts A and B are included. Patients enrolled in risk-bearing health maintenance organizations (HMOs) are excluded from our analyses. Health maintenance organizations receive capitated payments from Medicare – a fixed annual amount per enrollee – in exchange for which the HMO must provide all required services. Since HMOs do not submit individual claims to Medicare, we must exclude members of HMOs from our claims analyses.
The rates are adjusted for the age, sex and race of the underlying Medicare population using the indirect method. They are not adjusted for regional differences in prices. While price differences explain some of the regional variation in Medicare spending, our studies suggest that utilization – the volume of services delivered – is a far more important driver of Medicare regional payment variation than price differences.