A handful of the nation's brainiest healthcare economists and policy analysts looked beyond obvious geographic variations in Medicare spending to explore why the federal health program for seniors pays considerably more to treat beneficiaries in some healthcare markets than others.
Elliott Fisher, M.D., who heads Dartmouth University Center for Health Policy Research; Mark Miller, Ph.D., executive director of the Medicare Payment Advisory Commission (MedPac), which advises the Center for Medicare and Medicaid Services on spending decisions; and Patrick Romano, M.D., a professor of medicine and pediatrics with the University of California Davis School of Medicine and a visiting fellow with the Washington, D.C.-based Center for Studying Health System Change, scratched deeper to examine other reasons for geographically disproportionate healthcare spending. The April 24 session was moderated by Jordan Rau, a reporter for Kaiser Health News. For years astute healthcare journalists have employed the Dartmouth Atlas of Health Care to spot geographic variations in medical treatment.
Congress recently has paid more attention to those spending variations, seeking ideas to trim escalating Medicare and Medicaid costs that threaten the programs' survival. Panelists encouraged journalists to consider other factors that might explain those variations.
MedPac's Miller said that practice variations—how doctors treat patients, which equipment they use and the frequency and intensity of the services they provide—-are key to understanding some of those variations. Miller said variations also are driven by regional wage differences. "Medicare pays different providers differently," he said, noting that teaching hospitals receive greater reimbursements for performing the same treatments than community hospitals because of their higher costs, some of which go to train young physicians. So markets with higher concentrations of teaching hospitals will see higher labor costs that could account for some spending differences.
Miller said that both provider and beneficiary fraud and abuse appear to be more prevalent in some areas of the country than others, citing South Florida, for example, as an area seeing disproportionate amounts of billing and service fraud.
"Fraud and abuse are part of the story," Miller said. "If you set high payment rates, providers will respond and drive utilization."
Researcher Romano compared Medicare spending between the Manhattan borough of New York City and Sacramento, Calif. He noted that CMS spends nearly twice as much on Manhattan Medicare beneficiaries as it does on its Sacramento patients. He said Manhattan boasts six teaching hospitals, which dramatically raises the costs of providing care there. He said that University of California Davis medical Center uses far fewer services, but has higher mortality rates after 180 days. "In some cases, providing more intensive care may prolong life. In some cases we get something from spending more."
He said that community health status also plays a significant role in geographic spending variations and high medical services usage. Romano said there is a profound association between low income areas and high hospitalization rates, three times the rates healthcare analysts find in high income areas.
"Poor people are sicker and receive less coordinated care," he said, attributing less than one third the cost of geographic spending variations to beneficiary health status.
Romano suggested reporters trying to explain vast spending differences should compare quality outcomes, severity of patient health status and the presence of competition between healthcare providers to obtain a more accurate explanation.
Fisher said it matters how CMS spends money on beneficiaries. He said spending more on evidence-based care "is clearly beneficial and saves money."
He said that in high spending locations, much more of the care is delivered proportionately by medical specialists than primary care physicians, which drives higher utilization and costs.
"Supply explains half the variations in cost," said Fisher. "The other half is explained by physicians making decisions."
He said CMS spends a great deal on home health services for Medicare beneficiaries in McAllen, Tex., and noted that the physicians ordering those services often owned them. Fisher said he's seeing an escalation in the medical arms race in which providers continually add new services and equipment to compete with rivals, driving up utilization and cost. "What drives prices is when multiple hospitals offer the same services. There is a role that community leadership can play in lowering prices," he said.
He cited the example of two competing Cedar Rapids, Iowa hospitals that collaborate in a single cancer center as an example of thoughtful ways providers can jointly use resources to reduce healthcare spending.
Fisher said low Medicare cost communities had physicians engaged as leaders and used data to drive behavioral changes. He advised reporters to ask local healthcare and community leaders about preparations for new payment models being piloted by CMS. One example of a demonstration project is the accountable care organization (ACO). ACOs allow hospitals, physicians and other providers who agree to care for entire populations for a fixed price based on historic spending data. Providers then share in any savings from reducing costs. The providers are "accountable" for providing evidence-based care and hope to save money by trimming unnecessary hospital admissions, readmissions and emergency room visits and cutting unneeded tests and care while improving quality.
"We will see many communities wanting to participate in these payment reform models," he predicted, calling rising healthcare costs the greatest problem to our healthcare system and Medicare's future.
In the discussion that followed panelists suggested reporters consult resources such as the Hospital Wage Index and Bureau of Labor Statistics to quantify local labor costs.
