Geographic Variations in the Cost of Treating Condition-Specific Episodes of Care Among Medicare Patients

This study examines geographic variations in the cost of treating 10 conditions.

The Issue:

Past research shows significant difference in medical care costs across different geographic regions. To better understand the differences, this study extends previous research by examining geographic variations in the cost of treating specific conditions. Consistency of patterns across different conditions and factors of population health and service mix are also assessed.


Key Findings:

  • The most expensive study condition was heart disease, averaging $5,163 per episode.
  • Of the 60 sites, no site was in the most costly quintile for all 10 conditions or in the least costly quintile for all 10 conditions.
  • Area mean costs were weakly correlated across conditions.
  • Associated with site episode costs was hospitalization rates, surgery rates, and specialist involvement. However, local population health indicators were most related to site total per-beneficiary costs.



Overall, these findings indicate that local practice patterns influence condition-specific episode costs, while population health impacts local per-beneficiary Medicare costs. This study provides important information for understanding and assessing quality—within-area differences may be more important than between-area differences.


About the Study:

The study used Medicare claims for 1.5 million elderly beneficiaries treated by 5,500 physicians responding to the 2004-2005 Community Tracking Study Physician Survey. Using episode treatment group software, 10 frequent or costly clinical conditions were identified for analysis. Both episode and total annual costs were calculated and examined across sites.