Why Geographic Variation in Medicare Spending Matters

Kelly Van Ochten for HealthLeaders Media , December 6, 2010

Such practices, Gawande writes, drive up the costs, and profits, associated with healthcare. In the wake of these findings he suggests that physicians in high spending regions are motivated by perverse incentives since current reimbursement models tend to reward the "overuse" of medical resources. This article received national attention as President Obama made it required reading for the White House health reform team.

The Dartmouth Atlas Project
The Dartmouth Atlas Projecthas been studying regional variation in healthcare spending, with a focus on Medicare, for more than two decades. Their data shows that Medicare spending per capita varies almost threefold between the lowest and highest spending regions in the nation.

In their report, Health Care Spending, Quality, and Outcomes: More Isn't Always Better from February 2009, the Dartmouth Atlas Project claims that a majority of the variation in healthcare spending around the country can be explained by differences in the volume of healthcare services, which they dub "supply-sensitive care".

At the heart of this argument lies the claim that higher spending regions tend to have more healthcare resources per capita, such as beds and physicians. With a greater supply of healthcare resources comes the propensity and opportunity to take advantage of the financial incentives that come with utilizing those resources.

Researchers with the Dartmouth Atlas believe that as a result, regions with a larger supply of healthcare resources have more frequent hospitalizations and more doctors' visits per capita as compared to lower spending regions. They also assert that excess healthcare does not result in higher quality care, and can actually lead to worse outcomes for patients. To support this argument they cite an increased likelihood of human error due to the larger number of hospitalizations and physicians involved in treating each patient.

Dartmouth Atlas Project Critics
Many issues have been raised with the variables and methodology used by the Dartmouth Atlas researchers. In November of 2009, the American Hospital Association (AHA) published the report, Geographic Variation in Health Care Spending: A Closer Look. In this report, AHA analysts acknowledge that variation exists but question the methodology and conclusions of the Dartmouth Atlas.

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