GAO on High-Cost Procedure Price Variation

Even the Government Accounting Office can’t resist visiting the topic of geographic price variation.   (GAO Report)   Pursuant to a request from Congress, the agency examined such variation in private health insurance for 2009 and 2010 for coronary stent placement, laparoscopic appendectomy and hip replacement.  The GAO created episodes of care and compared total cost and categories of cost.  Unadjusted episodes were first created and then fine-tuned for differences in costs of doing business and enrollee demographic and health status factors in each region.  They compared 78 MSAs, looking at five service components within the episodes:  hospital inpatient, hospital outpatient, post-discharge, professional and ancillary, and examining intensity, volume and price within these categories.

As is always the case in this line of research, GAO found significant variation across geographies, for example, while the average episode cost for the appendectomy procedure was $12,506, in the top quintile of MSAs the average was $17,o47, while in the lowest quintile it was $8802.  These were unadjusted costs, but even after adjustment there is enormous variation; in the case of the appendectomy it was 511% different from the highest MSA to the lowest on an unadjusted basis, but still 320% on an adjusted basis.  And MSAs tended to be high or low across all the tested episodes.  But there was no major geographic area, like the South or the Northeast, that harbored more high or low MSAs, these were scattered across the country.  The single most important factor in variation was the cost of the initial inpatient hospitalization.  This represented about two-thirds of the average total cost across all episodes, and accounted for an astounding 91% of variation across all episodes.  High-cost MSAs had higher service prices and greater intensity, but lower volume of services than did low-cost ones.  This is another useful study and one that verifies again the outsized role of hospitals in driving health spending.