Technical Report: A Standardized Method for Adjusting Medicare Expenditures for Regional Differences in Prices

Per capita Medicare spending is more than twice as high in New York City and Miami than in places like Salem, Oregon. How much of these differences can be explained by Medicare’s paying more to compensate for the higher cost of goods and services in such areas? To answer this question, we analyzed Medicare spending after adjusting for local price differences in 306 Hospital Referral Regions. The priceadjustment analysis resulted in less variation in what Medicare pays regionally, but not much. The findings suggest that utilization—not local price differences—drives Medicare regional payment variations, along with special payments for medical education and care for the poor. NOTE updated report in 2018