One of the perceived symptoms of US Medicare inefficiency is the existence of the dramatic variation in spending and utilization in different areas of the country. This study uses the Continuous Medicare History Sample, a large longitudinal 5% sample of all Medicare beneficiaries from 1974 to 2003, to study the issue. We show that the spending and utilization disparities are significant at the aggregate state level. More importantly, the variation shows signs of narrowing over time, particularly in the earlier years of the sample period and in some cases following major reforms. However, it remains significant even after an array of demographic, demand and supply side factors are controlled for. Copyright © 2010 John Wiley & Sons, Ltd.