Regional variation in Medicare spending is often blamed on inefficiency in the Medicare program. Purportedly, the Medicare program would become much more efficient if only policymakers could force hospitals in high-spending regions to practice medicine in a similar manner as hospitals in low-spending regions.
A new study in JAMA by economists, Joseph Newhouse and Alan Garber, casts doubt on this theory. Newhouse and Garber found nearly three-quarters of the regional variation in Medicare spending is on post-acute care outside the hospital. This includes: nursing home care, home care, skilled nursing, rehab, hospices, etc. Newhouse and Garber go on to explain these are services that are rarely used by non-Medicare populations, which is partially why regional variation is not as common among private insurance expenditure.
An earlier analysis by NCPA senior fellows, Rettenmaier and Saving also called into question whether regional variation could be blamed on inefficient hospitals. Although they didn’t analyze Medicare spending by category, Rettenmaier and Saving found that Medicare spending was high when the uninsured population is large, and spending by private insurance is low. Basically, they found that Medicare spending substitutes for lower private spending:
As expected, a higher uninsured rate is associated with lower state health care spending in the non-Medicare/Medicaid population. In contrast, a higher percent of the population with no insurance resulted in higher Medicare spending per enrollee indicating cost shifting to Medicare.