U.S. Healthcare Spending: Are Regional Differences Indicators of Waste?
Posted by David Edman in January 2010, Metrics on January 18th, 2010 | 4 Comments »
According to 2006 data from Medicare, the average annual cost per beneficiary for people residing in Honolulu, HI, was $5,311. In contrast, Medicare recipients in Miami each cost the government $16,351 in 2006, over three times as much. Why the difference? The rising cost of healthcare in the United States continues to confound our policymakers. Why is that we spend so much more per capita in the United States compared to other industrialized countries (i.e., our economic competitors)—and we don’t have better health to show for it? The fundamental reason is that too much of our healthcare spending goes for unnecessary care, inappropriate care, and poor quality care.
For over 20 years, the non-profit Dartmouth Atlas of Health Care has done research to explain regional variations in healthcare. It will surprise no one that it costs more to take care of sick people than those who are relatively healthy. But does that account for the difference in annual Medicare costs (2006) per beneficiary in Honolulu ($5,311) compared to Miami ($16,351)?
Physicians’ Decisions Account for Most Regional Variation
According to a recent study in The New England Journal of Medicine, 70% of the differences in healthcare spending by region can’t be explained by the health status of the population. Compared to so-called “low spending regions,” Medicare beneficiaries in the highest spending regions spend more time in the hospital (average of 2.1 days vs. 1.4 days), have more frequent physician visits (14.5 vs. 10.7 per year), undergo more MRI procedures (21.9 vs. 16.6 per 100 beneficiaries), and have more computerized tomography (CT) scans (61.4 vs. 46.9 per 100 beneficiaries). The authors conclude that discretionary decisions by physicians account for most of the regional variation in spending.
The obvious conclusion: We can reduce the cost of care without sacrificing the quality of care. The economics of our current healthcare financing system inadvertently drives up utilization and cost, and it’s up to the payer to change the economics in order to yield different results.
Let me know what your experiences and thoughts are regarding regional differences in healthcare spending.
Great Blog, enjoyed the articles
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Dave:
Good initial start with your analysis of the problem. I’m curious, however, as to what the data show as to the number of physicians by region. Adam Smith would have theorized that the region with the most doctors per capita would produce lower costs as the invisible hand of supply and demand worked its magic to reduce the price of healthcare. My guess would be that Miami has more doctors per capita than Honolulu. So, why doesn’t supply and demand work in healthcare?
Peter:
Good question. I think in healthcare, supply generally drives demand, rather than the other way around. It does not meet the criteria for a typical economic exchange where individuals pay based on their concept of ‘value’ and the necessary information (or transparency) is available to make informed decisions. Have you been on the Dartmouth Atlas website (www.dartmouthatlas.org)?–great information on this subject.