Health care spending varies widely between geographic regions, but there is disagreement regarding the appropriate policy response. Regional policies include reducing Medicare payment rates in high-spending regions, limiting the supply of health care facilities using certificate-of-need criteria, and implementing care-improvement collaboratives. The Institute of Medicine opposed regional policies in favor of hospital- and health care professional-focused policies, such as bundled payments, accountable-care organizations, and value-based payments. Their concern was that substantial variation in Medicare spending occurs within geographic regions and high-performing hospitals and health care professionals in low-performing regions would be unfairly penalized by regional policies. To further inform this debate, we compared the amount of spending variation that occurs between regions vs between hospitals.
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