Medicare and Medicaid spending variations are strongly linked within hospital regions but not at overall state level.

Proposals to move toward reducing geographic differentials in health care spending have focused on patterns of spending in Medicare. We show in this article that when considering each state as a whole, there is almost no relationship between the level of spending for Medicare beneficiaries and that for other populations. In sharp contrast to these state-level results, there is a strong relationship between Medicare and Medicaid spending in comparing Hospital Referral Regions within each state. We suggest that the strong intrastate regional correlations demonstrate the importance of the supply of hospital beds, specialists, and other health care resources as determinants of use and spending. In contrast, the lack of correlation at the state level suggests that other factors, such as state-level poverty rates, influence use and spending at the state level, and that these other factors influence Medicare and non-Medicare use and spending differently. These findings demonstrate that it is important to broaden our analytic focus from Medicare beneficiaries to the larger population, and to consider the likely effects of changes in Medicare payment policy on the care received by other state residents.