In this episode, we discuss the results of a NRHI study that measured and reported on the differences in the total cost of care within and across regions in the US. Our special guests are Meredith Roberts Tomasi from HealthInsight Oregon, and Jonathan Mathieu from the Center for Improving Value in Healthcare.
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Highlights of this episode include:
- Background on the NRHI and their study that measures and reports on differences in the total cost of care across six states in the US.
- Why Maryland’s all-payer hospital rate setting produces a total cost index 20% below the six-state average.
- How Metro and rural areas differ on total cost of care across the regions studied.
- What the regional variation in price versus utilization could mean for policy in the future.
- And more…
Mike Passanante: Hi, this is Mike Passanante. And welcome back to the Hospital Finance Podcast.
Rising healthcare costs are a persistent and difficult issue in the United States. The Network for Regional Healthcare Improvement has published a multi-region analysis looking at total cost of care and cost drivers across the US.
To discuss the results of this analysis, I’m joined by Meredith Roberts Tomasi who is the Associate Executive Director for HealthInsight Oregon and Jonathan Mathieu who is Vice President of Data & Delivery for the Center for Improving Value in Healthcare.
Meredith and Jonathan, welcome to the show.
Jonathan: Thank you.
Meredith: Thanks so much.
Mike: So, why don’t you start out by telling us a little bit about NRHI for those who may not be familiar with your work.
Meredith: I can start and then Jonathan can fill in any blanks that I missed.
So, NRHI is a national organization that represents about 35 regional healthcare improvement collaboratives—or RICs as we call them—as well as their partners working in their communities as well as nationally to improve lots of different areas of healthcare including patient experience, quality, the health of populations and reduced the per capita cost of the healthcare we receive.
These organizations are all not-for-profit. They’re all multi-stakeholder. And they really are committed to making healthcare the best it can be in their individual communities.
Jonathan: I think it’s important to note that the regional approach to doing this is important. As someone once said, all politics is local. I put healthcare in the same boat in that healthcare cost and quality issues are typically very local in nature, care is delivered locally (although providers may be part of a larger regional or national organization). But ultimately, care is delivered by people in local markets or in local communities. And that requires a local approach or a regional approach to addressing the issues that are unique to particular parts of the country.
Meredith: The other great thing about working with NRHI and these other regional healthcare improvement collaboratives is we’re not competing with each other. We’re all in very different areas of the country. And what that allows us to do is really share best practices and learn from each other’s mistakes and wins.
Jonathan and I have formal and informal conversations regularly about what we can learn from the approach that we’re taking in our communities, so we can advance both Colorado and Oregon in these important areas.
Mike: Yeah. And some of that variation shows up in the study results. So I’m excited to dive into that with you here.
Why don’t you just briefly explain why this particular analysis was initiated? And then, we can talk about what you found.
Jonathan: The former executive director of NHRI, Elizabeth Mitchell, was working in Maine and had a lot of interest in implementing the Health Partner’s Total Cost of Care Measure Set. This was developed by Health Partners in Minnesota which is an integrated payer and provider system that covers about a million covered lives in Minnesota. And the measure set is NQF-endorsed or endorsed by the National Quality Forum.
And Elizabeth was trying to come up with resources to support implementation of the measures in Maine to help inform healthcare cost drivers and other issues there. And ultimately, the Robert Wood Johnson Foundation said, “We’ll fund this work, but you need to bring us five states. We don’t want to fund this in just one state. We want to see it applied over five states. And we want to be able, ultimately, to see you compare and contrast results and look at variation in cost drivers across those five participants.”
So, back in 2013, five of us got together in Austin, Texas to kick off the original project. And again, as Elizabeth liked to say, there’s been lots and lots of talk about doing something like this across multiple states for many, many years—and we actually did it.
So, I think it’s one thing to understand costs and cost drivers within your own region or within your own state. It’s a lot more powerful if you can put that in a broader context across multiple states. And that’s what this work does.
In Colorado, there’s long been an impression that care is relatively expensive. But we didn’t really have any idea of how expensive care in Colorado is until we started participating in this project.
We’ll get more into the results in a little bit. But I think one of the most important contributions of this work is that we went beyond talk. We actually made this happen across multiple states in a way that facilitated meaningful comparisons. And we went out and did it.
Meredith: And Jonathan, I completely agree. But I don’t want people to think that this was easy, that we just went out and did it.
We met in Austin five years ago last month. And we had worked daily to make sure that we’re able to compare costs within regions and across regions.
One of the things about regional healthcare improvement collaboratives is we all have our individual approaches to data, to collaboratives, et cetera. And it was a real challenge to get five of these collaboratives to get together and say, “Okay, what is one methodology we can all agree to use to enable comparisons across these regions.”
And we came to the decision about Health Partner’s methodology pretty early on, but it took us years to get to a place where we’re comfortable that our data was in similar shape, we’re comparing apples to apples within our data, and we employed outside technical advisors to give us advice and pointers to how we can make sure that we’re actually comparing similar data sets.
So, that was hundreds of hours of effort across the years. And I think we’re all pretty proud that we are able to get to that point though it took us a little bit longer than expected.
Mike: It certainly is a very deep analysis. And I want to jump right into that now because I think our audiences are anxious to hear about the results. And as you’ve already intimated, the cost by geography does tend to vary quite a bit.
I’m just very interested in hearing from both of you what you found and what you think might be driving some of those variations.
Meredith: That’s the $20 million question.
So, the first thing I’ll say is that this is the third time we were able to produce this benchmark report, as we call it. And one of the real positives that has come out of this work is the results are pretty darn consistent year over year.
So, the results from the 2014, 2015 and 2016 comparisons, you don’t show states widely swinging from least expensive to most expensive. So that consistency gives us some more validity to what we’re actually seeing.
I’ll say one other standouts from the reports is Maryland continues to be the lowest cost of all the regions that we’re reporting on. And some listeners might be familiar with Maryland’s all-payer hospital rate setting that’s been in place for years and years and years. And as a result, it’s not terribly surprising that we see their hospital costs lower than the average—or quite a bit lower than the average.
In fact, if you look at the total cost index which is a combination of both resource use and price, they’re 20% below the six-state average. So that’s pretty remarkable.
I’ll leave it to Jonathan to tell you about the state on the other extreme.
Jonathan: So, Colorado, we have participated in benchmark reports two and three. We had some data challenges the first time around and opted not to publish our initial results publicly. But Colorado has stood out as the highest risk adjusted total cost of care state in the second and third benchmark reports. We actually went from 17% above the multi-state average to 19% above in this most recent report.
And one of the really powerful things about the Health Partners’ total cost of care methodology is it allows you to decompose those results into price and utilization components.
So, Colorado showed up 19% above the six-state average in this latest report. It was driven by both higher than average prices and higher than average utilization. In Colorado, those two affects worked in the same direction. And it’s very similar to what we saw the last time around.
Specifically, resource use was 5% to 6% above (or utilization of services) the multi-state average; and prices were 13% above. So prices were the more important driver of Colorado’s higher than average total cost of care, but resource use played a factor as well.
Several years ago, Uwe Reinhardt wrote an article, the title of which was It’s the Prices, Stupid! And he was looking at what was driving rising healthcare costs nationally. And when you take an aggregate view of rising healthcare costs, prices stand out head and shoulders above utilization as the primary driver.
But what the Health Partners’ methodology shows is it’s not just prices, it’s utilization as well, especially when you start looking across states and regions within state.
And Colorado, the last few years has done some in-depth analysis by division of insurance rating area, or by geographic region in Colorado, and we see similar results in the more densely populated urban areas of the state.
The total cost of care is relatively low generally driven by both lower than average prices and utilization. In the mountain resort communities and in the more rural areas of Colorado, they had higher than average total cost of care relative to the state-wide average, and generally driven by both higher than average utilization and spending.
So, prices matter a lot. But when you start looking at differences across states and regions within states, prices and utilization both play a very significant role.
Meredith: But Oregon’s story is a little bit different than Colorado—if I can just take a moment to tell you what we’ve learned about Oregon too…
Oregon is actually just about 4% above the average, the multi-state average for the total cost. So, that’s pretty good. We’re kind of at the average. But when you start slicing and dicing the data into those resource use and price components that Jonathan mentioned, you start to see another story.
So, overall, our resource use is pretty low across settings—so across in-patient and outpatient settings, as well as professional and pharmacy. Our resource use is about 10% below average—which is great. It means that providers are using care the way they should across settings.
But when you look at the prices, you see something else.
So, our prices are about 16% higher than the multi-state average. And when you start digging a little bit deeper, you see that this is being driven by in-patient prices, outpatient prices and professional prices. Outpatient prices are actually 32% higher than the multi-state average.
If you’ve taken the math in, that leads to some pretty important questions within our community. Why are prices so much higher than prices in other states?
And what we found similar to what Jonathan was describing within Oregon’s geography, we’re seeing that cost in terms of price and resource use is lower in the Portland Metro region, and then gets higher as you get out to the more rural areas.
So, kind of like Colorado, Oregon’s population is really driven into a couple of Metro areas. And as soon as you get outside of those Metro areas, you see both the cost increasing, but also the quality decreasing.
And that’s something we always want to talk about. You don’t want to report on price especially on a regional level without some kind of quality indicator because no one wants to be sending patients to low cost, low quality providers.
Mike: So, you both said a lot that we can unpack here which is very interesting. So you’ve got variations in utilization. But generally, it seems as though the more urban you get, the better we utilize the resources and contain the costs—if I’m hearing you correctly.
And then, you’ve got Maryland on the very extreme end of the spectrum where they’re actually doing things like rate-setting which is maybe not everyone’s favorite policy—you can debate that—but it seems to be keeping their overall costs under control.
So, how do you interpret all of this nationally? And what do you think some of the policy implications could be going forward?
Jonathan: So, I think what the variation in price versus utilization drivers says to me at least is that there’s no one-size-fits-all policy. Colorado has both higher than average prices and higher than average utilization. So, from a state-wide perspective, one might be tempted to say we need policies to address both. But what you see when you start looking at the sub-regional level is that the influence of price and utilization vary by region. And so what we really need are policies that are uniquely designed to address the cost drivers in a specific region.
Meredith can speak to this from the Oregon perspective. But again, as she did the moment ago, the resource use index in Oregon is 10% below the six-state average, whereas total cost and prices were above. A strategy or a policy in Oregon intended to reduce utilization of services or the intensity of services delivered to clients is not going to be effective in lowering overall costs because they’re already 10% below the six-state average in terms of resource utilization.
But with 16% above average prices, there is an opportunity for policies. At a high level, in Oregon, generally, policies intended to reduce those prices may have an impact in terms of bringing down your total cost even further.
Meredith: I’d say the other thing that we’d want to be aware of is that every state has their own politics. So another state, Utah also participated in the study. And you can imagine in the demographics of Utah that their cost in terms of pricing, utilization might look very, very different than a state like Oregon or Colorado. They have a very young population, a very healthy population.
Now, we should also note that all of this data is risk adjusted. So the fact that Utah has a healthier population than some of the other states like Oregon or Maryland, that’s all taken into account.
So, it’s really important that policymakers understand some of the nuances of this data because the last thing we want to happen is to put forth policy that’s actually not going to drive the change at the level it’s needed.
As an example, I’ll just use one of the reasons that we think prices might be higher in Oregon is that we know that the Medicare reimbursement in Oregon is quite a bit lower than it is in most places. So, one theory is that providers need to increase their prices in order to make out for those losses for their Medicare populations.
I don’t know, I can’t verify that that’s true. But that’s something we heard anecdotally.
We also know that the cost of living is higher in Oregon than some of these other regions. So if we want to continue attracting doctors and other types of providers to Oregon, we need to be compensating them in a way to consider that higher cost of living.
Some of those things can be addressed at a policy level. But other things might not be able to be addressed.
Mike: Certainly, healthcare affordability is going to be an issue that we nationally are going to struggle with for some time to come. But hopefully, this study and studies like it will continue to forward the conversation and help us find new and better solutions to the problem.
If you’d like to look at the NRHI benchmark study, head over to Besler.com, look for the blog post associated with this podcast, and we’ll have a link to it from there for you.
Meredith and Jonathan, thank you so much for stopping by the Hospital Finance Podcast today and giving us your insights around this unique benchmark study.
Meredith: Our pleasure!
Jonathan: Yeah, thank you very much for having us.