Potential Cost Savings From Reduction of Regional Variation in Medicare Spending

Abstract

Potential cost savings estimated from reduction of regional variation in Medicare spending are considerable but questioned. This article evaluates the validity of the principal methods that have been used in the estimations of the potential savings. Three estimation approaches were identified. The first approach uses adjusted expenditures to calculate avoidable costs, but adjusted expenditures can be independent of avoidable costs, and measurement errors are not controlled. The second approach uses an outcome variable to replace its causal factors, and is not acceptable because the association between the outcomes and the causes is untestable. The final approach uses surveys to directly measure physician beliefs and patient preferences, but the sole study using this approach is weakened by sample selection biases and incomplete controls. A development of reliable measures and a switch of observation from clinic settings to geographic contexts could make the estimations more convincing.