As part of his push for the Affordable Care Act in 2009, President Barack Obama came to Central High School to laud this Colorado community as a model of better, cheaper health care. “You’re getting better results while wasting less money,” he told the crowd. His visit had come amid similar praise from television broadcasts, a documentary film and a much-read New Yorker article.
All of the attention stemmed from academic work showing that Grand Junction spent far less money on Medicare treatments — with no apparent detriment to people’s health. The lesson seemed obvious: If the rest of the country became more like Grand Junction, this nation’s notoriously high medical costs would fall.
But a new study casts doubt on that simple message.
The research looked not only at Medicare but also at a huge new database drawn from private insurance plans — the sorts used by most Americans for health care. And it shows that places that spend less on Medicare do not necessarily spend less on health care overall. Grand Junction, as it happens, is one of the most expensive health care markets in the country for the privately insured — despite its unusually low spending on Medicare.
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Health care researchers who have seen the new findings say they are likely to force a rethinking of some conventional wisdom about health care. In particular, they cast doubt on the wisdom of encouraging mergers among hospitals, as parts of the 2010 health care law did.
Larger, integrated hospital systems — like those in Grand Junction — can often spend less money in Medicare by avoiding duplicative treatments. But those systems also tend to set higher prices in private markets, because they face relatively little local competition.
“Price has been ignored in public policy,” said Dr. Robert Berenson, a fellow at the Urban Institute, who was unconnected with the research. Dr. Berenson is a former vice chairman of the Medicare Payment Advisory Commision, which recommends policies to Congress. “That has been counterproductive.”
Just as in Grand Junction, the researchers found high private spending in Rochester, Minn., and La Crosse, Wis., two other places that spent relatively little on Medicare. But the paper found that spending in one system doesn’t predict spending in another. Some of the areas with the most cost-effective Medicare providers also have lower-cost private health care — but just as many places with relatively low Medicare costs have high private insurance spending.
Consider Boise. Spending on Medicare patients is very low in this area. But when it comes to private health insurance, spending is relatively high.
Boise has the 23rd-lowest spending for Medicare out of 306 hospital-referral regions nationwide, but the 72nd-highest spending for private insurance.
The prices insurance companies pay for medical care are a major factor in which markets are expensive for private insurance and which are more moderate.
Consider a knee replacement, which is becoming a more common procedure for Americans older than 50. Private health insurers negotiate separate prices for those operations with every hospital in their network. That’s different from Medicare, which sets relatively standard rates around the country, with only slight adjustments for local conditions. The prices paid by private insurers vary widely. The least costly price in the study for the simplest type of knee replacement was only about $3,400. The most expensive one was about $55,800.
The wide ranges of price occur not just in different places, but often within the same community. The researchers examined prices at six hospitals in the Salt Lake City area and found the surgery can cost insurance companies as little as about $21,600 or as much as about $29,500, depending on the hospital a patient chooses. (Detailed data for Boise is unavailable.)
They found a similar variation for a whole range of common health care procedures, including MRI’s, colonoscopies, childbirth and cardiac care.
Other studies have provided samples of such prices, but the new research shows the amounts paid by three large insurers to nearly every hospital in the country, providing a rare glimpse into actual transaction costs.
In Medicare, regional differences in spending are driven mostly by the amount of health care patients receive, not price per service. Researchers at Dartmouth Medical School have studied these differences extensively, creating an influential online map of Medicare spending known as the Dartmouth Atlas of Health Care. Places with lots of health care fraud, say, or wasteful care are expensive without making their patients healthier. Other places, such as Grand Junction, have historically done a good job of keeping patients healthy without needing to give them a lot of medical treatment.
Those successes were the reason the community was so studied and praised. Local doctors banded together to form big group practices decades ago, and those groups grew skilled at communicating about what local patients needed — and didn’t need. One big hospital offered a full suite of medical care, and it worked hard to help patients plan for the end of their lives.
Policymakers who worked on the Affordable Care Act have sought to emulate those best practices, by rewarding doctors and hospitals that work together to take care of patients holistically. The Dartmouth researchers testified before Congress when the Affordable Care Act was being written, saying that any policy that made the high-spending places more like the low-spending ones could make health care both cheaper and of higher quality. (Since then, some critics of the Dartmouth research have said it failed to account for factors outside the medical system that might drive use of doctors and hospitals. Others have questioned the focus on reducing all health care spending, as opposed to the wasteful kind.)
The new research found that, in general, places that offer patients fewer treatments in Medicare also use fewer medical treatments for privately insured patients. That means that efforts to eliminate wasteful care can save money in both systems. But the high prices sometimes charged to private insurers matter even more.
“The reason why health insurance for the privately insured is expensive is because the prices from hospitals with a lot of market power are higher,” said Zack Cooper, an assistant professor of economics and health policy at Yale University, and the paper’s lead author.
MARKET POWER AND PRICES
Worries about excessive market power prompted Idaho and the federal government to sue the St. Luke’s Health System in 2013 when it purchased Saltzer Medical Group in Nampa despite a warning from Idaho Attorney General Lawrence Wasden’s office. St. Luke’s lost, and a federal judge in Boise ordered it to divest Saltzer. That has not yet happened, so on Dec. 10 the judge appointed a monitor and divestiture trustee to assure the divestiture occurs within 12 months at any cost.
Several prominent researchers who read Cooper’s paper said they had become convinced that policymakers needed to do more to address the high prices charged by some health care providers.
Many of the changes pioneered by the Affordable Care Act have been devised to reduce wasteful medical care, but few have been directly concerned about price.
Jonathan Skinner, a health economist who works on the Dartmouth Atlas, said that there were still lessons to be learned from places such as Grand Junction, but he acknowledged that the new work showed the limitations of studying Medicare in isolation. “This idea that if the entire country turned into Grand Junction, that we’d suddenly save 20 percent on health spending, maybe that’s not totally true,” he said. “Prices are a real problem.”
The new data include nearly every claim made by employer health plans sold by UnitedHealthCare, Aetna and Humana, and represent about 14 percent of all people in the United States. In 2011 the three insurance companies formed an organization to pool their data, the Health Care Cost Institute, which shared the data with the researchers.
Notably absent from the study is any data from Blue Cross Blue Shield plans around the country. The Blue plans are the largest in many communities, including Boise, and it’s possible their absence might change the results. Mr. Cooper and his co-authors did some checks to make sure that their results weren’t distorted by places where the Health Care Cost Institute insurers had a small fraction of the market, and they were reassured by the results.
Six years after the president’s visit, residents of Grand Junction say they are puzzled at how the community had earned its reputation as a national model.
Mike Stahl, the CEO of the social services agency Hilltop, one of the largest employers in town, said he had been proud when he attended Obama’s speech. Yet his own company’s health insurance costs had been high and rising for years.
“We were kind of surprised at that,” he said. “If we're the best in the nation, how bad is the rest of the nation?”
The Idaho Statesman contributed.
Note: The data exclude the 1 percent of claims that are least expensive and the 1 percent that are most expensive. Sources: “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured.” Zack Cooper (Yale University), Stuart Craig (University of Pennsylvania), Martin Gaynor (Carnegie Mellon University) and John Van Reenen (Centre for Economic Performance, London School of Economics).