Local Patterns of Healthcare Usage, Pricing Drive Affordability, Report Says

Where are the opportunities to reduce the cost of healthcare, and what's really driving differences in the total cost of care among the states?

A new report out Tuesday from the Network for Regional Healthcare Improvement (NRHI) finds that the considerable differences among the total cost of healthcare in 5 states were mostly caused by local patterns of healthcare usage and pricing.

The report, Healthcare Affordability: Untangling Cost Drivers, looks at the average cost of healthcare for comparable populations as its benchmark and compares each state with that average.

It finds that different care delivery patterns and local prices contribute to the significant cost differences between Oregon, Utah, Colorado, Minnesota, and Maryland. Maryland had the lowest total cost; the other 4 states could potentially save more than $1 billion if they matched Maryland.

The report uses a method of measuring healthcare costs called the total cost index (TCI), made up of 2 components, a resource use index and a price index. The TCI determines whether the states’ cost differences are a result of above- (or below-) average healthcare use, the prices paid for those healthcare services, or both.

Local policies, demographics, and market factors all play a role in driving each state’s healthcare costs.

• Colorado’s high use of outpatient services, 25% above average, had the greatest impact on its total cost.
• Maryland uses healthcare resources 3% less than average, but with prices 13% lower than the benchmark, its total cost of care was 16% below the average.
• Minnesota’s resource use and prices were 10% higher than average and resulted in total costs 7% above the benchmark.
• Oregon’s costs are equal to the benchmark, with its higher prices offset by lower resource use.
• Utah, with the nation’s highest per capita birth rate, used inpatient resources 16% more than average, but its 14% lower prices helped bring the state’s total costs in at 4% below average.

NRHI is a national nonprofit organization representing regional health improvement collaboratives and state partners. Tuesday’s report is its second annual report comparing the total cost of care for those with private insurance in various US regions.

“With $1 of every $6 in the American economy going to healthcare, it’s imperative that we determine what is driving healthcare costs,” said Elizabeth Mitchell, president and CEO of NRHI. “You can’t fix what you don’t understand, but with reliable and actionable information on cost drivers we can enable healthcare stakeholders to make the changes needed to bring down the cost of care.”

“This report provides insight into the 'why' of healthcare costs, exposing how different care delivery patterns and local prices can result in very different overall costs,” said Mitchell, a member of the editorial board of The American Journal of Managed Care^®, in an email to the journal. “If expanded across states, the type of data in this report could serve as a literal map to healthcare affordability, enabling stakeholders to use that map to navigate change. If a region’s costs are driven primarily by the frequency and type of services used, strategies might include encouraging physicians to reconsider how frequently they order tests or their referral patterns. If the region’s primary problem is price, purchasers or policy makers might need to help redirect the market. No longer would efforts to reduce cost in one area be opaquely offset with higher prices or utilization in another.”

Across states, inpatient care saw the greatest variation in price. Hospital prices were 16% higher than the benchmark in Oregon and Colorado, compared with 12% and 14% below average in Maryland and Utah, respectively.

This variability occurred in every category of care except pharmacy pricing, which is largely attributable to the influence of a few large pharmacy benefit managers and pharmaceutical manufacturers’ national pricing policies.

NRHI has collaborated with several of its members on its Total Cost of Care initiative since November 2013. With the publication of this report, NRHI now has 2 sets of regional cost comparisons, and another round is scheduled for release in late 2018. With 3 years of data, trends will begin to emerge to support existing hypotheses or challenge long-held assumptions.

“America’s healthcare cost crisis will not be solved by data,” said Mitchell, “but it cannot be solved without it.”

The NRHI report was developed with support from the Robert Wood Johnson Foundation.