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How Would You Like To Pay Triple For That Triple Bypass?

October 1, 2011
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What it means when more and more cost data becomes available in healthcare

I was fascinated by the results of a study released on August 10 by the New York-based Thomson Reuters.

Analysts in the healthcare business division of that company conducted and funded a study that compared the costs and spending for healthcare services for 23.5 million Americans across 382 metropolitan statistical areas (MSAs) nationwide, in 2009.

The Thomson Reuters study found tremendous variation in per-person healthcare spending on the part of healthcare purchasers and payers, with the lowest-spending MSA being Ogden-Clearfield, Utah, at $2,623 per person per year in 2009, and the highest-spending MSA being Anderson, Indiana, at $7,231 per person. That is an astonishing differential of 2.7567; in other words, healthcare purchasers and payers had to pay nearly three times as much per covered life in Anderson as in Ogden.

In a press release issued on Aug. 10 to accompany the release of the study, Ray Fabius, M.D., chief medical officer of the healthcare business at Thomson Reuters and one of the study’s authors, was quoted as saying, “Studying these geographic variations can help us identify locations where healthcare costs are less, yet the quality of care and outcomes are not compromised. Understanding where, why, and how medical care costs less can provide solutions to control our nation’s healthcare spending.”

Interestingly, the study’s authors pointed out that, drilling down a level or two, “Spending patterns also varied significantly by age group and type of expenditure. In Ocala, Fla., for example, healthcare spending for children was 45 percent below the national average, and spending for adults (age 18-64) was 18 percent above average.” Meanwhile, MSAs with high inpatient costs also were found to be likely to have high outpatient costs as well, debunking the theory that high outpatient spending tends to limit or offset the use of inpatient services.

More broadly, this study confirms and validates many previous studies, including ongoing work by the Dartmouth Atlas Project, initiatives from several of the main national and regional purchaser alliances, and other efforts, all of which have consistently found dramatic inconsistencies in healthcare costs (charges, really) and spending all across the U.S.

It should be fascinating to see how the three new mandatory programs under Medicare triggered by federal healthcare reform (the readmissions reduction program, the healthcare-acquired conditions reduction program, and the value-based purchasing program), plus the two new voluntary programs (the accountable care organizations and bundled payments programs) begin to reshape this landscape nationwide. Fundamentally, healthcare providers are being told in no uncertain terms that the dramatic variations in cost (and charges), not to mention in clinical outcomes, have become intolerable to purchasers and payers.

And really, who could blame them? Realistically, who could justify a 2.7567 differential in costs to purchasers and payers between the healthcare markets of Anderson, Indiana, and Ogden, Utah? More and more, as the data, information, and the analytics to peer behind the curtains in healthcare, are revealing variations in physician practice patterns, variations in hospitals’ ways of delivering care, and variations in payment-driven incentives, that just don’t make much sense to any objective observer. This study didn’t drill down to the procedure level, but, just for the sake of argument, let’s say that the different in the cost of a triple bypass at the average hospital in Anderson versus at the average hospital in Ogden matched the overall spending differential in the per-person spending on healthcare in those two markets. Is it even remotely possible that such a procedure would actually cost three times as much to perform in that one market over the other? And, taking the analogy one step further, is it even vaguely imaginable that the patient outcomes would be three times as good between a triple bypass in Anderson as in Ogden??

Fundamentally, the public and private purchasers and payers of healthcare are trying to compel providers forward towards a new era of accountability, transparency, quality, efficiency, cost-effectiveness, and rationality. And healthcare IT leaders will naturally be front and center in efforts to help their clinician and executive colleagues in their hospitals, medical groups, and health systems justify the charges that purchasers and payers are paying for the care of their insured members in individual markets.

What is becoming more and more clear over time is that the old bromides—my patients are sicker,” “our community is different,” etc.—will no longer work, particularly as the data analytics systems become hyper-effective at sorting through risk stratification and other challenges to apples-to-apples comparisons. So the race is on, for CIOs, CMIOs and other healthcare IT leaders to collect, analyze, publish, and ultimately justify the data related to their organizations. And, come contracting time, inevitably, some patient care organization senior executives will find themselves behind the eight-ball when it comes to explaining why their local healthcare market is in the top 10 most expensive in the country. Ouch.