Variation in Episode Cost in a Commercial Health Plan

Variation in health care spending by geographic area and provider has been extensively studied in the Medicare context, but much less so for commercial health plans.  Research conducted by UnitedHealth Group and published in Health Affairs examines both the relationship between quality and cost and geographic variation in episode of care costs.   (Health Affairs Article)   UnitedHealth runs a premier designation program which ranks doctors’ performance on around 300 quality of care measures.  The information is used for feedback to physicians, for patient choice of provider support and for employers and others to use in value-based purchasing initiatives, where there is a desire to incent patients to use higher-quality, low cost providers.  Based on claims data from 2006 to 2009, the research found that for the same episodes of care, physicians who received both quality of care and low-cost status had about 14% lower costs.  This suggests that it may be true that high quality and low cost can often go hand-in-hand.

In terms of overall variability of costs, for treating chronic conditions there was almost a 15 times difference between the 10th and the 90th percentile.  That is enormous variation.  In regard to some common medical procedures, there was lesser, but still substantial variation at around 2.5 times from the 10th to the 90th percentile.  Using hospital referral regions, for chronic conditions, in low cost markets costs were about 15-20% below the median while in high-cost ones, spending was 15-20% above that median.  There generally was greater geographical variability in costs related to major procedures.  Even within markets there was often very significant variation in costs.  In regard to non-hospital services, price differences explained about 10% of episode cost variation, with quantity and intensity of services being the main driver.  For hospital services, other research has shown that price differences are largely responsible for cost variation.  In general, the researchers found relatively high levels of overall quality in care.