A study published in Health Affairs examined per-capita Medicare spending for 306 Hospital Referral Regions finding that regional variations in the cost of goods and services accounted for only a small share of Medicare regional price differences.  The authors note that the findings suggest that utilization and special payments for medical education and the poor drive the bulk of regional Medicare payment variation.

Gottlieb, D.J. et al. (2010). Prices don't drive regional Medicare spending variations. Health Affairs 29(3): 537-543. doi: 10.1377/hlthaff.2009.0609 http://content.healthaffairs.org/cgi/content/abstract/hlthaff.2009.0609

Authors: Daniel J. Gottlieb, Weiping Zhou, Yunjie Song, Kathryn Gilman Andrews, Jonathan S. Skinner, and Jason M. Sutherland.