Geographic correlation between large-firm commercial spending and Medicare spending

To investigate the correlation between geographic variation in inpatient days, total spending, and spending growth in traditional Medicare versus the large-firm commercial sector.

Retrospective descriptive analysis.

Medicare spending data at the hospital referral region (HRR) level were obtained from the Dartmouth Atlas. Commercial claims data from large employers were obtained from Thomson Reuters MarketScan Database for 1996-2006 and aggregated to the HRR level. County-level data on inpatient days per capita and market characteristics were obtained from the Area Resource File. We computed correlations between Medicare and commercial spending and spending growth, as well as Medicare and non-Medicare inpatient days, and examined traits of high- and low-spending HRRs in both sectors.

We found a positive correlation between inpatient days per capita across counties, but a small inverse correlation between measures of commercial and Medicare spending across HRRs. Spending growth was weakly positively correlated across HRRs. Markets in the upper third of commercial spending had more concentrated hospital markets than markets in the lower third of commercial spending. The reverse was true for Medicare spending.

The positive correlation in utilization and lack of correlation in spending implies an inverse correlation in prices. This is consistent with evidence that the differences appear to be, at least partially, related to aspects of the market structure. If private markets are to work better to reduce cost, stronger efforts are needed to reduce provider market concentration and promote competitive pricing for healthcare services.