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What’s Going on in Grand Junction?

April 19, 2012 in Health Insurance, Medicare, Optimal Ins (Theory) | 2 comments

Grand Junction has been lauded as one place that offers some of the best healthcare in the nation, at the lowest cost.

“Grand Junction ranks near the top in Medicare’s Composite Quality of Care index, with a score of 91. That’s 21 points higher than McAllen.

But costs in Grand Junction are among the lowest in the nation, sixth from the bottom among 307 cities.

Medicare spends just $5,873 per year on the average recipient here, compared to a national average of $8,304, according to the Atlas of Health Care published by Dartmouth University. Grand Junction’s costs are well under half the $14,946 average in McAllen, which is second most expensive.”

How does it do it?  One reason is its integrated model for caring for patients.

“The doctors told the insurer that they didn’t want to stratify their patients — favoring those with private health insurance, reluctantly treating those on Medicare and Medicaid, the government programs for the elderly and the poor, which pay doctors less than private insurers. In many parts of the country, Medicare and Medicaid patients have trouble finding physicians who will treat them.

So, RMHP [Rocky Mountain Health Plan] said the physicians of Grand Junction did not have to know which of their patients are on which plan. To do this, RMHP pooled the incoming fees for private, Medicare and Medicaid. Then it reimbursed the doctors the same for all their patients.”

Uninsured individuals can even get free care.  The local hospital donates a million dollars per year to support care for the uninsured at the Marillac Clinic.

Is this model replicable in other areas?  Unless there is structural change, I would say no.

Implementing this type of system requires a number of institutional attributes.

First, there is a near monopoly by insurers and providers.  Rocky Mountain Health Plan has over 60 percent of the market.  Mesa County Physicians Independent Practice Association represents about 85 percent of the region’s physicians.  Since there are two dominant forces in the market, cost-sharing agreements are feasible.  In the current system, Medicare and commercial patients are subsidizing those with Medicaid or no insurance.  If an insurer wanted to gain market share, it could offer more generous benefits to Medicare or commercially insured individuals.  That strategy may work in certain cases, but if there are significant economies of scale, it is possible that Medicare and commercially insured patients could still receive better care at lower cost than with a smaller, more tailored plan.

The near monopoly in Grand Junction, but implementing monopolies in other cities could mean that everyone receives poor care rather than excellent care.

Second, doctors have to be willing to accept lower incomes, particularly specialists.  Grand Junction saves money by performing fewer procedures, but it is these expensive procedures are what generates high physician incomes.  ”Dr. David West, a member of the physicians’ association, says specialists are generally paid two to four times as much per year as primary care doctors, and he thinks that’s too much. In Mesa County, specialists are hired to think, not to run up the procedure count, and that means they give up income to benefit their patients, their community and the family doctors.”

Can Grand Junction be replicated?  Maybe.

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Regional Variation in Medicare Spending

September 18, 2011 in Supply of Medical Services | 1 comment

What causes regional variation in spending and outcomes?  Previous research claimed that physician treatment norms in different areas account for much of these differences.  Recent research, however, claims that most of these regional differences are caused by geographic differences in health status.  Reschovsky et al (2011) find the following when examining a sample of Medicare beneficiaries linked to 2004–2005 Community Tracking Study Physician Survey:

Nonetheless, a key finding from this work is that key conclusions from prior small area analyses (e.g., Fisher et al. 2003; Center for the Evaluative Clinical Services 2007) that much of the variation in cost of treating Medicare beneficiaries is driven by supply-induced demand (e.g., “supply-sensitive care”) cannot be supported when one comprehensively controls for health status and conducts analysis at the beneficiary level. Zuckerman et al. (2010) reaches a similar conclusion. Medical specialists serving as USOCs and the proportion of medical specialists in the county were the only two supply-side variables with positive effects on costs consistent with other research (Fisher et al. 2003; Baicker and Chandra 2004). However, the strength of the medical specialist results, though not trivial, would explain little of the geographic variation documented in the Dartmouth Atlas. The supplies of hospital beds had significant positive effects among high-cost beneficiaries, but elasticities suggest that the magnitude of the effect is extremely small: doubling hospital bed supply would increase costs by <2 percent.

Physician choice of treatments may still have some impact on cost for certain procedures although the latest research seems to indicate that its affect on regional variation for total spending is small. Further, over time, the physician discretion may decrease in the Internet age due to 1) patients being more informed of their treatment options and 2) physicians gaining easier access to information on best practices. Nevertheless, the most recent research clearly indicates that patient health status is the key driver of medical spending.

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Is there really large differences in Medicare Spending across states?

March 30, 2011 in Health Reform, Medicare, Supply of Medical Services | 2 comments

Research by the Dartmouth Atlas team has indicated that Medicare spending is concentrated regionally.  States such as Florida spend much more per beneficiary than do doctors who treat similar patients in low cost states like Minnesota.

A recent paper by Reschovsky and co-authors, however, has determined that variation in supply-induced demand is not a major driver in regional variation in health care costs once one controls for health status at the beneficiary level.  Read more to find out how the authors came to this conclusion.

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