Variations in Medicare Spending

A few years ago the federal government started releasing detailed data about Medicare spending. Analysts quickly determined that Medicare spending averaged quite a bit around the country. Some areas have much higher average spending per Medicare beneficiary than others, and some providers bill Medicare much higher amounts. This blog post discusses a new study that tries to determine some of the causes of the differences in spending. Its conclusion is that about half of the difference is due to local medical practices (for example, routinely ordering more diagnostic tests) while half is due to people who demand more medical care migrating to certain areas.

But now a unique study co-authored by MIT economists provides a new answer to the medical cost mystery: By scrutinizing millions of Medicare patients who have moved from one place to another, the researchers have found that patients and providers account for virtually equal shares of the differences in regional spending.

“We find it is about 50/50, half due to patients and half due to places,” says Heidi Williams, the Class of 1957 Career Development Associate Professor in MIT’s Department of Economics, and a co-author of a new paper detailing the study’s findings.