Geographic Variation in Medicare Medical and Drug Spending

The widespread geographic variation in Medicare spending has garnered a great deal of attention in the health reform debate, both as a marker of inefficient resource use and as a window into potential strategies for improving the quality and value of health care delivery. Analysis to date, however, has focused solely on inpatient and outpatient spending and lacked information on pharmaceutical spending. With drug spending accounting for a rising share of total health care spending, this data limitation hinders interpretation of the variation: do Medicare patients who spend more on pharmaceuticals to control their chronic condition have fewer physician visits, reducing total variation – or do more physician visits lead to more prescriptions, amplifying variation? Without information on total spending, it is impossible to know whether variation in spending on medical services is masking substitution across different types of care or complementary use. PMC ID: PMC3364516 (July 29, 2010)