Health Status and Hospital Prices Key to Regional Variation in Private Spending

Hospital Prices for Privately Insured Two or Three Times What Medicare Pays in Some Communities

News Release
Feb. 15, 2012

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON , DC—Differences in health status explain much of the regional variation in spending for privately insured people, but differences in provider prices—especially for hospital care—also play a key role, accordingto a new study by the Center for Studying Health System Change (HSC) for the nonpartisan, nonprofit National Institute for Health Care Reform (NIHCR).

Based on claims data for 218,000 active and retired nonelderly unionized autoworkers and their dependents, the study found that health spending per enrollee in 2009 varied widely across 19 communities with large concentrations of autoworkers, from a low of $4,500 in Buffalo, N.Y., to a high of $9,000 in Lake County, Ill.  The autoworkers’ health benefits are essentially uniform nationally, so spending differences do not reflect benefit differences.

Differences in service quantities accounted for two-thirds of the overall spending variation, while differences in prices accounted for one-third, according to the study.

On the quantity side, differences in health status and other demographic factors explained most, but not all, of the variation in quantity. About 18 percent of the total variation in spending was a result of unexplained differences in service quantities. On the price side, the cost of doing business explained very little of the price differences, with almost all of the differences in prices unexplained, the study found.

“The study documents that differences in prices—especially for hospital care—play a significant role in regional spending variation for privately insured people,” said study author Chapin White, Ph.D., an HSC senior researcher.

“At the same time, the finding that almost a fifth of the total variation in spending across the communities is a result of unexplained differences in quantities suggests there is significant room to improve care delivery and increase efficiency,” White said.         

The study’s findings are detailed in a new NIHCR Research Brief—Health Status and Hospital Prices Key to Regional Variation in Private Health Care Spending—available online at www.nihcr.org.

To compare prices paid by the autoworker plan with Medicare prices, three categories of services were examined: physician office visits for evaluation and management services, hospital facility fees for inpatient care, and hospital facility fees for emergency department care.

• Physician office visits. The prices paid by the autoworker plan for physician office visits, on average, were only 3 percent higher than what Medicare would have paid for the same service. In eight of the 19 communities, the autoworker plan prices for physician office visits were actually below Medicare. In the highest-price communities, the autoworker plan paid about 20 percent above Medicare.

• Hospital inpatient care. The prices for inpatient hospital care paid by the autoworker plan were, on average, 55 percent higher than what Medicare would pay, and the price gap varied widely across communities. In the lowest-price communities—Syracuse and St. Louis—the autoworker prices were 30 percent above Medicare. In the highest-price community—Lake County—the autoworker price was more than two-and-half times the Medicare price.

• Hospital emergency department care. The prices paid by the autoworker plan for hospital emergency department care were, on average, more than double the Medicare price, and the price gap varied even more widely across communities than for inpatient care. In the lowest-price communities, the autoworker plan paid prices about 50 percent higher than Medicare, while in the highest-price community—Indianapolis—the autoworker plan paid prices three times as high as Medicare.

The study also included spending information from the following metropolitan areas:  Akron, Ohio; Cleveland; Detroit; Flint, Mich.; Grand Rapids, Mich.; Kokomo, Ind.; Lansing, Mich.; Monroe, Mich.; Rockford, Ill.; Saginaw, Mich.; Toledo, Ohio; Warren, Mich.; Wilmington, Del.; and Youngstown, Ohio.

The National Institute for Health Care Reform contracts with the Washington, D.C.-based Center for Studying Health System Change to conduct high-quality, objective research and policy analyses of the organization, financing and delivery of health care in the United States. The nonpartisan, nonprofit 501 (c)(3)organization was created by the International Union, UAW; Chrysler Group LLC; Ford Motor Company; and General Motors to help inform policy makers and other decision-makers about options to expand access to high-quality, affordable health care to all Americans.

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is affiliated with Mathematica Policy Research.