Geographic variation in medical costs: evidence from HMOs

This Data Watch presents data on geographic variation in medical costs across a sample of forty-six cities, using enrollment-weighted average Federal Employees Health Benefits Program (FEHBP) health maintenance organization (HMO) premiums. Variation of average HMO premiums is markedly less than variation of per capita fee-for-service costs as measured by Medicare's adjusted average per capita cost (AAPCC) index. Moreover, average HMO premiums across the sample were largely uncorrelated with AAPCC values. These findings raise some doubt about the suitability of using the AAPCC index for geographic adjustment of Medicare's HMO capitation payments.