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Report: Use, Not Price, Drives State Health Costs

Report: Use, Not Price, Drives State Health Costs

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In healthcare, costs of individual services and products make less of a difference in state-level spending than the overall use of those products and services, a new report indicated.

The Network for Regional Healthcare Improvement (NRHI) examined regional differences in 2015 healthcare costs, and the drivers of those costs, for private payers in Oregon, Utah, Colorado, Minnesota, and Maryland. The NRHI’s second annual report emphasized that utilization and costs must be must be examined together.

“You can’t fix what you don’t understand, but with reliable and actionable information on cost drivers, we can enable healthcare stakeholders to make the changes needed to bring down the cost of care,” said Elizabeth Mitchell, president and CEO of NRHI, in a press release.

Using a Price Index (PI) and a Resource Use Index (RUI), the NRHI analysis calculates how much of the difference in cost is due to price versus the volume of services, for example the quantity and intensity of tests and treatments used.

Of the five states, Maryland had the lowest overall total cost of care at 16% below the risk-adjusted average among private payers for “comparable populations,” while Colorado saw risk adjusted spending that was 17% above the average.

Total costs of care for the remaining states (compared with the average across the five states) was:

  • Minnesota: 7% above average
  • Utah: 4% below average
  • Oregon: 0% equal to average

Colorado’s total cost of care appeared to be highest because it had the highest overall resource use at 11% above average. Specifically, outpatient resource use was 25% above the benchmark, which was the highest of all five states. Colorado residents also showed the highest use of prescriptions at 23% above average.

Jonathan Mathieu, PhD, vice president of research and compliance and chief economist at the Center for Improving Value in Health Care (CIVHC) in Denver, said the NRHI findings are “directionally correct,” but cautioned that a “variety of factors” would have to be examined to determine the state’s high total costs.

Resource use was a more significant cost driver than price in Minnesota and Utah, but the category of resource use varied in those states. Resource use in Minnesota tipped higher because residents there saw doctors 10% more than the average, however the state also had 10% higher prices, the report noted.

In Utah, inpatient resource use was 16% higher than average as the state has the highest birth rate per capita in the country. However, some of this upward pressure on costs may have been erased by the fact that hospital prices were 14% lower on average.

Maryland’s data showed that lower prices — roughly 13% below the risk-adjusted average — played the strongest role in keeping total costs low in that state. However, resource use was also 3% below average. For 35 years, Maryland has had the only hospital rate regulation program in the country and, in 2014, the state began limiting all-payer per capita hospital growth.

In Oregon, higher prices and lower resource utilization essentially cancelled each other out.

The NHRI used the Health Partners Total Cost of Care Index to determine how spending varied across different geographical regions for similar patients “after adjusting for morbidity and minimizing the impact of catastrophic cases.”

“The underlying primary care practice level reports can support individual improvement and the development of value based payments,” according to the report.

Mylia Christensen, executive director for HealthInsight Oregon and Q Corp, explained during a webinar Tuesday how the report’s data has become actionable for practices. For example, primary care physicians who had embedded behavioral healthcare services into their clinics were excited to see that their behavioral health line item was higher than their peers, she noted.

“Because that’s what they were trying to do; to expend more resources in primary care clinics,” Christensen said, adding that patients who received these services in clinics were less likely to end up in emergency departments.

On the other hand, some oncology clinics who compared their cost data with their peers became concerned about the high costs they were seeing for MRIs and other tests.

“This information gives them a look at something that they didn’t have before,” Christensen said. “They could actually make choices … that could actually do something to affect change.”

The NRHI said it now has two complete sets of regional cost comparisons, with a third slated for release in late 2018. “With three years of data, trends will begin to emerge to support existing hypotheses and/or challenge long-held assumptions,” according to the group.

The report has some limitations. “Variations in payers contributing to multipayer databases and variation in the quality of submitted data pose a unique challenge when trying to develop a consistent sample for analysis,” according to the report. For example, some participants contributing data may treat “compliance with submission specification” differently.

Also, the sources of data, and the sample size, in many states may have changed since 2014, the report noted.

NRHI said it hopes to include data analysis for Medicare and Medicaid populations in the future.

The report was supported by the Robert Wood Johnson Foundation.


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