Geographic Variation in Medicare Drug Spending

The widespread geographic variation in Medicare spending has garnered a great deal of attention in the health care reform debate, both as a marker of inefficient resource use and as a window into potential strategies for improving the quality and value of U.S. health care. Analyses to date, however, have focused solely on inpatient and outpatient spending (Parts A and B) and have lacked information on pharmaceutical spending (Part D). With drug spending accounting for a rising share of total health care spending, these data limitations hinder interpretation of the variation in spending: do Medicare patients who spend more on pharmaceuticals to control their chronic conditions 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 of one type of care for another. We have brought data on the Medicare drug benefit (Part D) to bear on these questions, to provide a more complete picture of the patterns of utilization and spending in different regions.