Last year, Atul Gawande wrote in the New Yorker about the remarkable differences in health care spending for two Texas cities: McAllen and El Paso. In 1992, according to the Dartmouth Atlas, the two cities were essentially identical with respect to per capita Medicare expenditures. By 2007, McAllen’s spending had surged, with overall expenditures nearly twice as high as in El Paso. Dr. Gawande visited the two communities, and brilliantly documented a culture of entrepreneurship among McAllen physicians that seemed to explain their elevated rates of hospital admissions, end-of-life care, and home health care.
But what about the under-65 population? Dr. Gawande spoke with two independent firms about their measures of under-65 utilization, and found generally higher rates in McAllen. My colleague Thomas Bubolz studies the under-65 Medicare population – primarily people on Social Security Disability Insurance — and his preliminary results also point to much higher utilization in McAllen compared to El Paso. Another study using national data by Michael Chernew and colleagues (here) found a strong positive correlation between utilization rates for Medicare and the under-65 population insured by large firms. (That they also found a negative correlation between Medicare spending and the negotiated price per procedure in the under-65 population points to another source of regional variation: market concentration.)
So when Luisa Franzini and Osama Mikhail, professors at the University of Texas School of Public Health, first offered me the opportunity to work with them using Blue Cross-Blue Shield data on under-65 spending in Hildago (McAllen) and El Paso Counties, I had strong expectations that we’d end up with pretty much the same result.
I was wrong. In a recent Health Affairs article, we found that, on average, overall spending per patient in McAllen was about 7 percent below that in El Paso. Granted, we found the familiar Medicare utilization patterns among people over age 50: McAllen admission rates were 89 percent higher than those in El Paso, and overall expenditures 23 percent higher. But outpatient visits and spending were lower across the board in McAllen, as was total spending for those under age 50. What was going on?
We ruled out a variety of hypotheses – that the Medicare differences weren’t measured properly or biased by lack of illness or price adjustment (they’re not). Indeed, the over-65 population in McAllen, comprising many retirees attracted by warm weather and low living costs, are a remarkably healthy group with mortality rates lower than those in Provo, Utah.
Some of the difference is explained by types of disease: there is virtually no home health for privately insured patients under age 50, and end-of-life care is a rarity. Typical hospital admissions for the younger population — births and automobile accidents – are more urgent and entail far less discretion on the part of the physician. But when the diseases are similar, such as circulatory disorders, the data are at least consistent with another story: physicians behave differently depending on who is paying the bill. Blue Cross – Blue Shield includes preauthorization requirements and utilization review, but Medicare does not. This gives a different interpretation to the regional variations story – it’s not just about enthusiastic physicians in a region doing more for all their patients, it’s about health care providers who are most enthusiastic when Medicare is paying the bill.
While the evidence supporting this hypothesis is circumstantial, the results are consistent with another recent study by Tomas Philipson and colleagues suggesting that private insurance payment mechanisms attenuate variations. And importantly, we cannot generalize from a sample of two Texas counties to say anything about overall variations in the under-65 population. Certainly, Richard Cooper’s work suggests as much unexplained variation in health care expenditures for the under-65 population (and for non-Medicare spending) as the Dartmouth Atlas finds in the Medicare population. We hope that our ongoing research looking at all Texas counties will shed light on this question.
Despite spending more than 17 percent of GDP on health care, we are at a loss to even document variations in prices and quantities of services provided in the under-65 population. This is because of a paucity of data; private insurance companies are hesitant to release data about their negotiated prices, and population-based measures of utilization can be problematic. But it is also important not to become too distracted by our ignorance of under-65 regional insurance markets. The key financial threat facing the U.S. federal government today is out-of-control Medicare spending growth. Whether Medicare expenditures are positively or negatively associated with under-65 spending is less important for the federal deficit than is developing new policies to contain excess Medicare cost growth.
- McAllen: A Tale of Three Counties
- The Road from McAllen to El Paso
- Gawande Nails it on Healthcare Costs
- Return to McAllen: A Father-Son Interview
- McAllen, TX As Outlier? Why Not Houston?
- Primary Care is Not a Panacea: It Takes a Team
- Regional Variation Revisited: Price Differences Not A Significant Factor