Geographic Variation in Health Care: Changing Policy Directions

NIHCR Policy Analysis No. 4

Dating back more than 40 years, a large body of research has identified wide geographic variation in fee-for-service Medicare spending and service utilization. A major early conclusion of geographic variation research was that care is provided much more efficiently in some areas of the United States than in others, with the implication that geography largely determines the care patients receive. As health care spending continues to outpace growth in the nation’s economy, approaching one-fifth of gross domestic product, some policy makers have identified reducing unwarranted geographic variation in health care as a way to control spending without compromising access or quality. Analysis of Medicare fee-for-service claims data in particular has contributed to calls for public policies to induce health care providers and patients in high-cost areas to adopt what appear to be the markedly more-efficient practice patterns of low-cost areas.

This Policy Analysis reviews evidence and key inferences from geographic variation research that have helped shape the ongoing policy debate about health care efficiency. More recent research, employing improved data and analytical approaches, indicates that unwarranted geographic variation is less extensive than believed. These findings support the emerging view that payment reforms narrowly targeted by geography would be ineffective in addressing local or national problems of health care costs and quality. A more direct and productive approach to reducing unwarranted variation in health care use and spending would be to focus policy changes on broader payment reform and oversight that can drive greater efficiency in health care delivery in all geographic areas. In other words, while geographic variation research has pushed the twin issues of uneven care and costs to the fore, it’s ultimately the broader health care system—not geography—that should be the policy focus. The health reform law includes many avenues to broader system reform, including the creation of accountable care organizations, bundled payments and medical homes, that may help drive higher efficiency and quality.