The Senate Finance Committee held a hearing today on ways to improve the quality of health care while reducing cost. Peter Orszag, director of the Congressional Budget Office, has some succinct and informative testimony here--highly recommended. One of the most interesting parts of Orszag's testimony concerned geographic variation in health spending; the map above shows Medicare spending per beneficiary broken down by hospital region. As you can see, high-spending regions expend twice as much or more per beneficiary as low-spending regions do, and the correlation between spending and health (Figure 1 in Orszag's testimony) isn't clear at all. In fact, if anything, it's slightly negative. Part of the reason some areas have higher spending is that there are higher rates of illness there--note, for example, the degree of overlap between low-spending regions on the above map and thin regions on this map. But that's not the main explanation: According to researchers at Dartmouth, illness rates account for at most 30 percent of the observed variation.
So what's the primary culprit? A lot of it, as Shannon Brownlee argued in her book Overtreated, is simple availability. Where there are more doctors performing expensive procedures, more procedures get performed, even if they contribute minimally or not at all to improved health outcomes. (Notice how dark Boston is!) This is largely a result of Medicare's fee-for-service reimbursement system, which provides an incentive to deliver more care, not necessarily better care. The obvious response is to move more toward a fee-for-performance system; needless to say, that would be a monumental change that would arouse quite a bit of opposition from providers who like the current system just fine. Coaxing more providers into investing in better information technology, which would reduce the frequency of medical errors and help eliminate unnecessary care, wouldn't hurt either--though that too runs into opposition from technophobe doctors and independent practitioners who, absent big subsidies from the feds, don't have a financial incentive to do it.