Variation in Medical Costs and Resource Utilization

By December 15, 2016Commentary

State agencies often provide some excellent health research and information.  My home state of Minnesota recently released a report from the Minnesota Community Measurement group which examined relative performance of various medical groups on costs per procedure, relative resource use and total cost of care.  (MCM Report)   The data sources include 1.5 million patients at 257 medical groups.  Minnesota basically has four health insurers covering most of the population and has several large health systems providing most of the care.  While this used to be a relatively low spending state, it has become pretty expensive, likely due to all the provider consolidation. At this point seven medical groups provide care for 52% of the covered patients.  The report focuses on average cost per procedure and number of procedures performed to get a total cost of care measure, which can be compared across provider groups.  This total cost of care measure is risk-adjusted.  For commercially insured patients the total cost of care increased 5.6% from 2014 to 2015 or from $449 per patient per month to $474. For comparison, the increase was 3.2% between 2013 and 2014.  The total cost of inpatient care was basically zero; for outpatient hospital it was up 5.8%, for professional services 6% and for drugs 9.3%.

There is a lot of variation in prices received by various providers and in their total resource utilization.  And there is not always a clear relationship.  Some providers with lower than average prices have higher than average utilization, and vice versa.  And we have a few really good providers in that low/low quadrant and a few really bad ones in that high/high quadrant.   In regard to pricing or basic office visits, the low was $75, the average was $140 and the high was $210.  Medicare pays $73 and Medicaid $56.  A simple strep test–low price of $8, average of $24, high of $101; Medicare pays $16, as does Medicaid.  Knee MRI, low was $216, average was $645, high was $3904; Medicare pays $239 and Medicaid 4168.  Looking down the full list of 90 procedures, similar variation exists across all of them.  Hate to say it (not really) but these high-charging providers should simply be shut down and put out of business.  There is no excuse for this pricing behavior.  Overall costs for the 121 medical groups for which their was adequate individual data ranged, on a risk-adjusted basis, from $365 per patient per month to $916.  80% of the groups are between $394 and $555, but to get a true sense you would need an average weighted by number of patients treated.

Guess who the really expensive provider in Minnesota is?  The Mayo Clinic far and away.  Trading on that big reputation.  Supposed to be a not-for-profit.  For shame.  Look, the message is pretty apparent as it always is.  If we can get prices paid down to even a little below the current average, we can save a lot of money.  Policymakers should do everything they can to empower and encourage commercial payers to do that, including repealing any willing provider laws and removing other network restrictions and allowing fluctuation of cost-sharing based on price charged by provider.  And if we can get total resource utilization by physician down to somewhere around the average, that also saves a lot of money.  So payers need to be permitted to do the necessary care management to get there, or to put providers at risk for not managing resource use prudently.  It would be really helpful if every state does a report like this that identifies providers specifically and reports on their pricing and utilization.  This allows payers, patients, employers and policymakers to put pressure on the ones who are out-of-line.

Kevin Roche

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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