Geographic variation in Medicare drug spending

The U.S. Congressional Budget Office estimates that gross spending on the Medicare program is expected to nearly double in nominal terms to $1,038 billion in 2020. In addition, as a proportion of gross domestic product, Medicare spending would likely grow from 3.5% in 2009 to 4.6% in 2020.

A 2010 study published in the New England Journal of Medicine, “Geographic Variation in Medicare Drug Spending,” examines spending on non-drug medical services and pharmaceutical expenses by patients across various geographical regions.

The study’s findings include:

• More than 20% of total Medicare spending was made up of pharmaceutical expenses.  However, there were large variations across hospital-referral regions due mainly to the amount of and cost of drugs prescribed.
• Variations in non-drug medical spending were even more substantial than pharmaceutical expenses.
• No strong correlation between pharmaceutical spending and non-drug medical spending across hospital-referral regions, after accounting for patients’ characteristics.

The authors conclude that the “weak correlation between the level of medical spending and the level of drug spending is consistent with drugs’ being a substitute for medical care for some patients and a complement to medical care for others.” To better understand the deeper causes of geographic variations in Medicare spending, the authors suggest that studies on resource deployment and usage would shed light on public policy design to improve the quality and cost-effectiveness of U.S. health care.

Tags: health care reform