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Despite offering a standard benefit to all enrollees, Medicare encounters wide geographic differences in spending per beneficiary. Area reimbursement discrepancies have become more visible with capitated payments to health care providers and managed care plans. This issue brief explores the known sources of regional variation in per capita Medicare spending and discusses some relevant policy issues for Medicare reform raised by these differences. Ultimately, policymakers asked to consider across-the-board Medicare payment changes based on national averages face thorny problems because improvements to some areas necessarily carry disadvantages to others.