Texas Hold 'Em: Medicare Spends High, Private Insurers Pay Even

In two similar Texas cities with a nearly twofold difference in Medicare spending, a new study released Dec. 7 has found there is very little difference between the two cities in private insurance spending on patients under age 65.

Wide variations in Medicare spending in the Texas cities of McAllen and El Paso were detailed in a 2009 New Yorker article by Dr. Atul Gawande, who examined data from the Dartmouth Atlas of Health Care. He attributed those variations to changes in McAllen during the mid-1990s, when health care providers adopted a greater "entrepreneurial spirit" and a "culture of money" that increases the use of profitable Medicare services when there is diagnostic and procedural discretion and clinical latitude.

Given that the same providers who care for Medicare patients generally also care for privately insured patients, researchers in the new study sought to determine whether spending also differed for privately insured patients under age 65 in the same cities.

Luisa Franzini of the Fleming Center for Healthcare Management at the University of Texas, in Houston, and her associates used price-adjusted Medicare claims data for 2007, removing all regional differences in prices to construct a price-neutral index of the use of medical services. They also considered a variety of health indicators such as hip fracture rates and cardiovascular and cancer mortality in the two regions that could explain observed differences in Medicare.

The researchers also obtained 2008 data for 65,701 Blue Cross and Blue Shield of Texas members in McAllen (Hidalgo County) and 66,657 in El Paso. With approximately 4.5 million members and one-third of the statewide commercial health insurance market, Blue Cross and Blue Shield of Texas is the largest commercial health insurance company in the state and the only statewide, customer-owned health insurance company. The data represented 10% of the population younger than age 65 in each county (Health Affairs 29, No. 12 (2010): 2302-2309) doi: 10.1377/hlthaff.2010.0492).

Total price-adjusted Medicare spending was 86% higher in McAllen than in El Paso, and was 75% above the national average in 2007. Medicare spending in McAllen was 63% higher than in El Paso for inpatient care, 32% higher for outpatient care, and 65% higher for Part B professional services. There was little difference in spending for durable medical equipment.

For home health care, spending in McAllen was 4.63 times the average in El Paso, and 7.14 times the national average. Hospice spending in McAllen was one-quarter of the level in El Paso and the United States. Further, Medicare enrollees in McAllen were more likely to be seen near the end of their lives by more than 10 physicians.

In contrast, for private insurance patients under age 65, total spending per member per year in McAllen ($2,266) was 7% lower than in El Paso ($2,428).?Outpatient services spending was 31% lower, and professional and inpatient services spending were similar or lower in McAllen, compared with El Paso.

For members aged 50-64, however, inpatient admissions for the privately insured population were 89% higher, and per patient inpatient spending was 117% higher in McAllen than in El Paso. The difference is roughly the same as that seen in Medicare spending. Due to lower outpatient spending, the overall spending in McAllen for this age group was 23% higher – still well below the 86% Medicare differential between the two cities.

In a blog post about the Health Affairs study, Dr. Gawande wrote, "But there is an important revelation here: not all the health care in a high-cost community has to be out of whack. The questions we then must ask are why the pattern is different for some groups of people, and whether such differences suggest ways to change the pattern for everyone."

The authors said the most probable explanation for their findings was payers’ cost-control mechanisms, especially in "gray zones of treatment." For patients with chronic conditions, for example, Blue Cross and Blue Shield of Texas has management programs and several mechanisms that encourage cost-effective care. "All elective inpatient admissions must be preauthorized, and counseling before admission and after discharge is used to establish postoperative goals and identify discharge planning needs. Furthermore, triggers such as a catastrophic event or claims higher than $50,000 per month activate a case management process that entails reviews of potential alternative treatment plans and follow-up after discharge from acute care.

"In contrast, there are fewer medical service controls in Medicare. Although the federal government can threaten providers with jail time and fines for fraud, unreasonable and unnecessary treatments are rarely monitored or prosecuted. Furthermore, it is unclear how the "utilization review plan" would be expected to scale back the use of medical services in practice. Medicare still enjoys some advantages over private insurance in its ability to set prices for payment to providers. Private insurance companies by contrast must negotiate prices. Yet for managing the use of medical services, private insurers have the advantage of a "threat point" at which they can ultimately refuse to contract for services to specific physicians or hospitals—something that Medicare cannot do," the researchers wrote.

The researchers acknowledge that their study is limited by a lack of good data on pricing, outcomes, and clinical services for the population under age 65. Also, the sample population was not representative of the entire under-65 population in the two cities.

In two similar Texas cities with a nearly twofold difference in Medicare spending, a new study released Dec. 7 has found there is very little difference between the two cities in private insurance spending on patients under age 65.

Wide variations in Medicare spending in the Texas cities of McAllen and El Paso were detailed in a 2009 New Yorker article by Dr. Atul Gawande, who examined data from the Dartmouth Atlas of Health Care. He attributed those variations to changes in McAllen during the mid-1990s, when health care providers adopted a greater "entrepreneurial spirit" and a "culture of money" that increases the use of profitable Medicare services when there is diagnostic and procedural discretion and clinical latitude.

Given that the same providers who care for Medicare patients generally also care for privately insured patients, researchers in the new study sought to determine whether spending also differed for privately insured patients under age 65 in the same cities.

Luisa Franzini of the Fleming Center for Healthcare Management at the University of Texas, in Houston, and her associates used price-adjusted Medicare claims data for 2007, removing all regional differences in prices to construct a price-neutral index of the use of medical services. They also considered a variety of health indicators such as hip fracture rates and cardiovascular and cancer mortality in the two regions that could explain observed differences in Medicare.

The researchers also obtained 2008 data for 65,701 Blue Cross and Blue Shield of Texas members in McAllen (Hidalgo County) and 66,657 in El Paso. With approximately 4.5 million members and one-third of the statewide commercial health insurance market, Blue Cross and Blue Shield of Texas is the largest commercial health insurance company in the state and the only statewide, customer-owned health insurance company. The data represented 10% of the population younger than age 65 in each county (Health Affairs 29, No. 12 (2010): 2302-2309) doi: 10.1377/hlthaff.2010.0492).

Total price-adjusted Medicare spending was 86% higher in McAllen than in El Paso, and was 75% above the national average in 2007. Medicare spending in McAllen was 63% higher than in El Paso for inpatient care, 32% higher for outpatient care, and 65% higher for Part B professional services. There was little difference in spending for durable medical equipment.

For home health care, spending in McAllen was 4.63 times the average in El Paso, and 7.14 times the national average. Hospice spending in McAllen was one-quarter of the level in El Paso and the United States. Further, Medicare enrollees in McAllen were more likely to be seen near the end of their lives by more than 10 physicians.

In contrast, for private insurance patients under age 65, total spending per member per year in McAllen ($2,266) was 7% lower than in El Paso ($2,428).?Outpatient services spending was 31% lower, and professional and inpatient services spending were similar or lower in McAllen, compared with El Paso.

For members aged 50-64, however, inpatient admissions for the privately insured population were 89% higher, and per patient inpatient spending was 117% higher in McAllen than in El Paso. The difference is roughly the same as that seen in Medicare spending. Due to lower outpatient spending, the overall spending in McAllen for this age group was 23% higher – still well below the 86% Medicare differential between the two cities.

In a blog post about the Health Affairs study, Dr. Gawande wrote, "But there is an important revelation here: not all the health care in a high-cost community has to be out of whack. The questions we then must ask are why the pattern is different for some groups of people, and whether such differences suggest ways to change the pattern for everyone."

The authors said the most probable explanation for their findings was payers’ cost-control mechanisms, especially in "gray zones of treatment." For patients with chronic conditions, for example, Blue Cross and Blue Shield of Texas has management programs and several mechanisms that encourage cost-effective care. "All elective inpatient admissions must be preauthorized, and counseling before admission and after discharge is used to establish postoperative goals and identify discharge planning needs. Furthermore, triggers such as a catastrophic event or claims higher than $50,000 per month activate a case management process that entails reviews of potential alternative treatment plans and follow-up after discharge from acute care.

"In contrast, there are fewer medical service controls in Medicare. Although the federal government can threaten providers with jail time and fines for fraud, unreasonable and unnecessary treatments are rarely monitored or prosecuted. Furthermore, it is unclear how the "utilization review plan" would be expected to scale back the use of medical services in practice. Medicare still enjoys some advantages over private insurance in its ability to set prices for payment to providers. Private insurance companies by contrast must negotiate prices. Yet for managing the use of medical services, private insurers have the advantage of a "threat point" at which they can ultimately refuse to contract for services to specific physicians or hospitals—something that Medicare cannot do," the researchers wrote.

The researchers acknowledge that their study is limited by a lack of good data on pricing, outcomes, and clinical services for the population under age 65. Also, the sample population was not representative of the entire under-65 population in the two cities.

In two similar Texas cities with a nearly twofold difference in Medicare spending, a new study released Dec. 7 has found there is very little difference between the two cities in private insurance spending on patients under age 65.

Wide variations in Medicare spending in the Texas cities of McAllen and El Paso were detailed in a 2009 New Yorker article by Dr. Atul Gawande, who examined data from the Dartmouth Atlas of Health Care. He attributed those variations to changes in McAllen during the mid-1990s, when health care providers adopted a greater "entrepreneurial spirit" and a "culture of money" that increases the use of profitable Medicare services when there is diagnostic and procedural discretion and clinical latitude.

Given that the same providers who care for Medicare patients generally also care for privately insured patients, researchers in the new study sought to determine whether spending also differed for privately insured patients under age 65 in the same cities.

Luisa Franzini of the Fleming Center for Healthcare Management at the University of Texas, in Houston, and her associates used price-adjusted Medicare claims data for 2007, removing all regional differences in prices to construct a price-neutral index of the use of medical services. They also considered a variety of health indicators such as hip fracture rates and cardiovascular and cancer mortality in the two regions that could explain observed differences in Medicare.

The researchers also obtained 2008 data for 65,701 Blue Cross and Blue Shield of Texas members in McAllen (Hidalgo County) and 66,657 in El Paso. With approximately 4.5 million members and one-third of the statewide commercial health insurance market, Blue Cross and Blue Shield of Texas is the largest commercial health insurance company in the state and the only statewide, customer-owned health insurance company. The data represented 10% of the population younger than age 65 in each county (Health Affairs 29, No. 12 (2010): 2302-2309) doi: 10.1377/hlthaff.2010.0492).

Total price-adjusted Medicare spending was 86% higher in McAllen than in El Paso, and was 75% above the national average in 2007. Medicare spending in McAllen was 63% higher than in El Paso for inpatient care, 32% higher for outpatient care, and 65% higher for Part B professional services. There was little difference in spending for durable medical equipment.

For home health care, spending in McAllen was 4.63 times the average in El Paso, and 7.14 times the national average. Hospice spending in McAllen was one-quarter of the level in El Paso and the United States. Further, Medicare enrollees in McAllen were more likely to be seen near the end of their lives by more than 10 physicians.

In contrast, for private insurance patients under age 65, total spending per member per year in McAllen ($2,266) was 7% lower than in El Paso ($2,428).?Outpatient services spending was 31% lower, and professional and inpatient services spending were similar or lower in McAllen, compared with El Paso.

For members aged 50-64, however, inpatient admissions for the privately insured population were 89% higher, and per patient inpatient spending was 117% higher in McAllen than in El Paso. The difference is roughly the same as that seen in Medicare spending. Due to lower outpatient spending, the overall spending in McAllen for this age group was 23% higher – still well below the 86% Medicare differential between the two cities.

In a blog post about the Health Affairs study, Dr. Gawande wrote, "But there is an important revelation here: not all the health care in a high-cost community has to be out of whack. The questions we then must ask are why the pattern is different for some groups of people, and whether such differences suggest ways to change the pattern for everyone."

The authors said the most probable explanation for their findings was payers’ cost-control mechanisms, especially in "gray zones of treatment." For patients with chronic conditions, for example, Blue Cross and Blue Shield of Texas has management programs and several mechanisms that encourage cost-effective care. "All elective inpatient admissions must be preauthorized, and counseling before admission and after discharge is used to establish postoperative goals and identify discharge planning needs. Furthermore, triggers such as a catastrophic event or claims higher than $50,000 per month activate a case management process that entails reviews of potential alternative treatment plans and follow-up after discharge from acute care.

"In contrast, there are fewer medical service controls in Medicare. Although the federal government can threaten providers with jail time and fines for fraud, unreasonable and unnecessary treatments are rarely monitored or prosecuted. Furthermore, it is unclear how the "utilization review plan" would be expected to scale back the use of medical services in practice. Medicare still enjoys some advantages over private insurance in its ability to set prices for payment to providers. Private insurance companies by contrast must negotiate prices. Yet for managing the use of medical services, private insurers have the advantage of a "threat point" at which they can ultimately refuse to contract for services to specific physicians or hospitals—something that Medicare cannot do," the researchers wrote.

The researchers acknowledge that their study is limited by a lack of good data on pricing, outcomes, and clinical services for the population under age 65. Also, the sample population was not representative of the entire under-65 population in the two cities.