Institute of Medicine identifies cost variation between geographic regions

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1. Institute of Medicine reports a correlation between geography and cost and quality data in the Medicare population.

2. On average there is a 42% difference in cost per Medicare member between high and low cost regions.

Evidence Rating Level: 2 (Good) 

Study Rundown: For over three decades, there have been variations in Medicare spending across the US for unknown reasons. In 2010 the Department of Health and Human Services requested the Institute of Medicine investigate the role of geographic variation in health care spending and quality for Medicare populations. The committee formed to study this question gathered claims information and conducted regression and correlation analyses to understand associations between geography, cost, quality, and utilization for over 47 million Americans.

Researchers found that geography was significantly correlated to cost and quality variations in the US, but also found there to be variation within regions as well – revealing low and high cost providers within a geographic region. Regions at the 90th percentile of cost spent on average 42% more per Medicare member than regions in the 10th percentile. Researchers found no consistent correlation between quality and spending or utilization. The committee recommends that CMS continue to experiment with payment and quality reforms to lower costs that are directed at decision makers rather than institute area wide reimbursement adjustments, potentially disadvantaging current low cost providers.

Click to read the study in the Institute of Medicine

Click to read an accompanying editorial in Health Affairs

In Depth [regression analysis]: Interestingly, when researchers compared cost variations by geography in the commercial market, there was far less difference. Costs were more equal across geographic regions in the private sector. Additionally, digging deeper into service specific associations, researchers found that geographic variations in cost were most dramatic in post-acute care and acute care services, where if there were no variation in these fields, spending would drop by an estimated 89%. The data revealed that over time, variation in spending persists by geographic region. High cost regions in 1992 have remained high cost in 2010.

Researchers make several recommendations in the report to legislators and CMS, including continuing to encourage patient-centered medical homes, shared savings programs, bundled payments and general incentives for physicians to coordinate care, share data, and make quality and cost more transparent. The conclusions of this study were preceded by a public data file opened on June 3, 2013 by CMS providing public transparency into billed and paid amounts for Medicare services in hospitals across the country. The strength of this study is its enormous scope and size and the amount of CMS data that has informed the recommendations and conclusions.

By Jordan Anderson and Andrew Bishara

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