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Regional Variation Revisited: Price Differences Not A Significant Factor

Merrill

Dartmouth scholars have revisited their analysis of regional variation in health  care spending and found contrary to the assertions of some critics that cost-of-living differentials do not account for much of the difference. However, they confirmed that some big cities with high poverty concentrations that also serve as training grounds for future physicians may have been unfairly lumped in with areas that overuse health care services.

The new study in Health Affairs showed after adjusting for price differences that Miami, Florida and McAllen, Texas still led the pack in terms of how much Medicare spent on each beneficiary. Both areas still spent nearly three times more than the lowest spending regions of the country, which remained Honolulu, Hawaii and LaCrosse, Wisconsin.

There were a few areas of the country where the adjustments made a big difference, and they were mostly big cities. The Bronx and Manhattan in New York City fell 39 and 33 percent, respectively, from the adjustments. But price was only a minor factor, according to the researchers, who were led by Daniel Gottlieb of the Dartmouth Institute for Health Policy and Clinical Practice.

Much of the reason why the New York metropolitan area is so costly is not because of the wage index per se (what we usually think of as “cost-of-living” adjustments), but because the CMS pays hospitals in the New York area so much to reimburse them for graduate medical education and caring for disproportionate shares of low-income patients.

Other high-spending areas frequently targeted by critics did not do so well under the adjustments. Los Angeles, for instance, dropped just 14 percent after adjusting for cost-of-living, graduate education and disproportionate share payments for low-income residents.

The Medicare Payment Advisory Commission issued a report late last year that suggested regional variation in use patterns were less than the Dartmouth Atlas of Health scholars had previously estimated. This latest study says regional variation still matter — a lot. The debate clearly isn’t over.

Here’s the list of the ten highest and ten lowest spending areas in the country both before and after adjustments for price, graduate medical education and disproportionate share payments:

10 high-spending hospital regions:

BEFORE        AFTER    % CHG.

FL-Miami               $15,909     $14,966      6%
TX-McAllen              13,633       13,881      -2
NY-Bronx                12,004         8,653      39
NY-Manhattan          11,744         8,861      33
TX-Harlingen            11,489       11,324      1
CA-Los Angeles        10,674         9,325      14
NY-Long Island        10,608         8,740      21
MI-Dearborn            10,460         9,791        7
LA-Monroe               10,226       11,385     -10
MI-Detroit                 9,954         9,541       4

10 low-spending hospital regions:
ND-Minot                   6,033         6,711     -10
VA-Lynchburg             6,022         6,524      -8
CO-Grand Junction      5,983         6,075      -2
OR-Eugene                5,968         5,798       3
IA-Iowa City               5,902         6,254      -6
SD-Rapid City             5,854         6,176      -5
OR-Salem                  5,810         5,642       3
IA-Dubuque               5,799         6,219      -7
WI-La Crosse             5,715         5,757      -1
HI-Honolulu               5,293         5,212       2

5 hospital regions with biggest drop due to price and other factors:

NY-Bronx                   12,004         8,653     39
NY-Manhattan            11,744         8,861     33
CA-Alameda County     9,251         7,094     30
CA-San Francisco         8,140          6,278    30
CA-San Mateo County  7,878          6,104     29

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dcochranRooster Shamblinarchon41@webtv.netPeterarchon41 Recent comment authors
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Peter
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Peter

“Um, hm, and by warding off diabetes and obesity-related problems, we preserve people for cancer, dementia and whatnot, at the same time extending the drain on social security resources.” Ok, just don’t treat the diseases that are man made and people will die sooner, far more efficient. Of course you’d have to stop the health industry from inventing ways to keep those people alive and mining the disease for many profit producing years. “Do you really believe Conagra controls my diet?” Maybe not much, I don’t know what you eat but they don’t control mine much. However they and other… Read more »

dcochran
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dcochran

It’s important to not generalize the Dartmouth Atlas assessment of costs to the overall cost drivers in a region. The Atlas is focused on Medicare costs which are based on utilization and Medicare-determined rates.
Commercial prices are based on negotiated rates which, as has recently been reported in the Boston Globe http://www.boston.com/news/local/massachusetts/articles/2010/01/29/attorney_general_says_clout_drives_up_health_costs/?page=1, vary substantially base on market clout — aka leverage. It is the combination of the utilization patterns reflected in the Dartmouth Atlas and the pricing patterns in markets with high concentrations of care by leveraged providers that will drive a region’s overall medical costs.

archon41@webtv.net
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archon41@webtv.net

Um, hm, and by warding off diabetes and obesity-related problems, we preserve people for cancer, dementia and whatnot, at the same time extending the drain on social security resources. Do you really believe Conagra controls my diet? I’m not terribly familiar with the “death panel” controversy, but I don’t think the reformistas made it sufficiently clear that, in no event, would people be restrained from using their own resources any way they please, wrong-headed though they may seem. And I’m talking about requiring people to contemplate end-of-life issues at a time when they are still healthy, not when they’re on… Read more »

Peter
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Peter

“I don’t see why, upon first qualifying for Medicare or Medicaid, people are not required to study on end-of-life issues.” Just try to get that past Republicans/Evangelicals who won’t scream “death panels”. The dead bill tried to address this issue. And why would you limit this to Medicare/Medicaid? “I don’t see how “wellness” and “lifestyle” regimens can have much impact here, since everyone will eventually croak anyway.” It’s not the croaking that’s killing us, it’s the cronic disease from our “lifestyle” choices. No plan, public or private, can contain costs when there’s an exposion in obesity and diabetes and all… Read more »

Rooster Shamblin
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http://roostershamblin.wordpress.com/ would you please spend a few minutes of your time and check out my new blog. I am a farmer who has been raising more than 50 breeds of chickens for forty years.

archon41@webtv.net
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archon41@webtv.net

Yes, Peter, insurers even double check their arithmetic, and conferences between treating physicians and the insurer’s medical experts, on catastrophic cases, are not uncommon. They just don’t have the authority, though, to control what Medicare can’t. I don’t see why, upon first qualifying for Medicare or Medicaid, people are not required to study on end-of-life issues. Most people have a horror of ending up as a human rutabaga. I don’t see how “wellness” and “lifestyle” regimens can have much impact here, since everyone will eventually croak anyway. The more I think about, most NYC doctors would probably think they had… Read more »

Peter
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Peter

“I don’t see how you pierce the defense of “medical judgment.”
Get rid of fee-for-service. Impose hosptial budgets where peer pressure and oversight prevents one or two docs from using their over zealous billing practices to steal income from other docs. Peer review and enforcement of best practice and comparative effectiveness. Bonuses for comimg in under budget. Is there ever a medical meeting between hosptial management and medical staff about budgets, except bill til you drop? Does insurance do any oversight for kind/amount/frequency of billing other than outright fraud to the insurance company?

archon41
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archon41

Not to utter blasphemy in the inner sanctum, but what is on the table to control those providers who, with monetary gain aforethought, engage in the practice of “overutilization”? I don’t see how you pierce the defense of “medical judgment.”
Actually, McAllen is hardly “forsaken.” It’s the destination of choice for “Winter Texans.” Now,El Paso is “forsaken” squared.

pikko
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Stephen
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My Healthcare Economics professor argued this for the entire semester, and made very compelling points to support his claims. It is possible that we could take advantage of these price differentials, but I think any savings would fall way short of “reform”.

maggiemahar
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Margait & Tim Margait –The Dartmouth reserachers will tell you that there is more than one root cause. An excess supply of specialists and beds leads to over-treatment. (Build the beds and someone will fill them.) When doctors own the hospitals, more patients are hospitalized. A “money culture” can develop in a town like McCallen– read the whole story in the June 1 New Yorker. It’s a matter of what becomes the norm in a particular community– if everone is doing it, and it’s lucrative, others begin doing it. (You’ll find that the McAllen docs admit this in the story.)… Read more »

rodney
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rodney

I have an HSA, which is ok for the young and healthy, although I’m feeling good enough to get a high deductible health insurance. I’m thinking that maybe these forms of health insurance, with little paid in premiums, could possibly bypass this ‘wage index’ problem in big cities? Well, i’m hopeful…

Wellescent Health
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Those numbers are rather significant in their variation. It would be good to see how they correlate with measurements of health of people living in the respective areas. Is there any possibility that some people are benefiting by paying more?

Margalit Gur-Arie
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Margalit Gur-Arie

Maggie,
The Dartmouth folks are very good at documenting WHAT is happening, but not WHY it is happening in some places and not others.
Why do we see more “entrepreneurial” physicians in those particular areas? Why are there too many Cardiologists in a forsaken place like McAllen?
I can see doctors flocking to Miami, New York, San Francisco and even Eugene, but not to Harlingen and Monroe. So why are they?
We seem to be lacking the root cause.

Tim
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Tim

Maybe I’m not understanding this. Even though: “Darmtouth has been doing this reserach for more than 20 years; they have thought all of the possible explanation for these variations, and have discoverd only a few explanations…(sic)” – Maggie Mahar (In other words, “the science is settled”.) …they do another study, in response to critics, looking at other factors they had not looked at before, and adjust several regions by double digits (in percentage terms), some as much as 30 percent!? According to Mr. Goozner: “…some big cities with high poverty concentrations that also serve as training grounds for future physicians… Read more »