State-level variations in hospital expenditures: An application of spatial regression

Hospitalizations have resurfaced as one of the primary concern for the United States healthcare system and the health planners due to their increasing share of total medical expenses, illness and mortality problems. Approximately, 30-38% of the total healthcare costs is due to hospitalizations. While there are many reasons for hospitalization, an estimated 25% to 40% of all admissions are for treating alcohol-related complications. Furthermore, it is plausible that the hospital spending in one state can affect the hospital expenditures of the neighboring states. This is because 1) hospital prices, practices and policies of the adjacent states influence the hospital expenditures of one state, and 2) presence of hospital facilities in a Hospital Referral Region (HRR) which serve patients across state lines. Therefore, using a Spatial Durbin Fixed Effect Model, this paper examines the state-level variations in hospital expenditures. This research used panel data from 2000 through 2009, extracted from publicly available data files. Results highlighted that rate of binge drinking, the total number of hospital beds and hospitals per 1,000 residents, the unemployment rate, the percentage of African-Americans, proportion of active physicians and state gross domestic product (GDP) had positive impacts on its neighboring states' rates of hospital expenses. Moreover, the increasing rate of male population, Hispanic population and the rate of un-insurance of a state had adverse impacts on its own rate of hospital costs but positive effects on its bordering states' rate of hospital spending.