Comparing local and regional variation in health care spending

Abstract

Background: Wide geographic variation in health care spending has generated both concern about inefficiency and policy debate about geographic-based payment reform. Evidence regarding variation has focused on hospital referral regions (HRRs), which incorporate numerous local hospital service areas (HSAs). If there is substantial variation across local areas within HRRs, then policies focusing on HRRs may be poorly targeted.

Methods: Using prescription drug and medical claims data from a 5% random sample of Medicare beneficiaries from 2006 through 2009, we compared variation in health care spending and utilization among 306 HRRs and 3436 HSAs. We adjusted for beneficiary-level demographic characteristics, insurance status, and clinical characteristics.

Results: There was substantial local variation in health care (drug and nondrug) utilization and spending. Furthermore, many of the low-spending HSAs were located in high-spending HRRs, and many of the high-spending HSAs were in low-spending HRRs. For drug spending, only 50.7% of the HSAs located within the borders of the highest-spending quintile of HRRs were in the highest-spending quintile of HSAs; conversely, only 51.5% of the highest-spending HSAs were located within the borders of the highest-spending HRRs. Similar patterns were observed for nondrug spending.

Conclusions: The effectiveness of payment reforms in reducing overutilization while maintaining access to high-quality care depends on the effectiveness of targeting. Our analysis suggests that HRR-based policies may be too crudely targeted to promote the best use of health care resources. (Funded by the Institute of Medicine and others.).

Figure

Quintile Analysis for Adjusted Pharmacy Spending and Non-drug Medical Spending Between Hospital-referral Regions and Hospital-service Areas Panel A. The Type of HSAs Located within High and Low-Spending HRRs For each quintile of HRR based on HRR spending, this chart shows what shares of the HSAs located within that type of HRR are high or low spending HSAs. For example, 50.7% of the HSAs in the highest drug-spending HRR quintile are in the highest drug-spending quintile of HSAs; 50.3% of the HSAs in the lowest drug-spending HRR quintile are in the lowest HSA quintile. Panel B. The Type of HRRs where High and Low Spending HSAs are Located For each quintile of HSA based on HSA spending, this chart shows what share of that type of HSA are located in high and low spending HRRs. For example, for adjusted pharmacy spending, 51.5% of the highest spending quintile HSAs are in the highest-spending quintile HRR; 49.6% of the lowest drug-spending HSAs are in the lowest drug-spending HRR quintile.

Figure

Quintile Analysis for Adjusted Pharmacy Spending and Non-drug Medical Spending Between Hospital-referral Regions and Hospital-service Areas Panel A. The Type of HSAs Located within High and Low-Spending HRRs For each quintile of HRR based on HRR spending, this chart shows what shares of the HSAs located within that type of HRR are high or low spending HSAs. For example, 50.7% of the HSAs in the highest drug-spending HRR quintile are in the highest drug-spending quintile of HSAs; 50.3% of the HSAs in the lowest drug-spending HRR quintile are in the lowest HSA quintile. Panel B. The Type of HRRs where High and Low Spending HSAs are Located For each quintile of HSA based on HSA spending, this chart shows what share of that type of HSA are located in high and low spending HRRs. For example, for adjusted pharmacy spending, 51.5% of the highest spending quintile HSAs are in the highest-spending quintile HRR; 49.6% of the lowest drug-spending HSAs are in the lowest drug-spending HRR quintile.