Healthcare cost differences in the 1990s the influence of metropolitan area marketplace dynamics
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Healthcare Cost Differences in the 1990s: The Influence of Metropolitan Area Marketplace Dynamics. Merton D. Finkler Lawrence University August 14, 2003. Scope of Study. How much variation in healthcare cost levels and growth rates exists across MSAs?

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Healthcare cost differences in the 1990s the influence of metropolitan area marketplace dynamics

Healthcare Cost Differences in the 1990s: The Influence of Metropolitan Area Marketplace Dynamics

Merton D. Finkler

Lawrence University

August 14, 2003


Scope of study
Scope of Study Metropolitan Area Marketplace

  • How much variation in healthcare cost levels and growth rates exists across MSAs?

  • Are Medicare payments to providers cost-shifted onto private payers?

  • Do differences in demographic structure help explain differences in cost?

  • Do differences in purchaser and provider market power help explain differences in cost?

    Sponsor: Cobalt Corporation – Milwaukee, WI


Motivation
Motivation Metropolitan Area Marketplace

  • Proprietary reports suggest significant differences in cost across MSAs

  • Local policy makers suggest low Medicare payments drive higher commercial payment

  • Payment for health care features different national and local incidence implications


Cost indicators
Cost Indicators Metropolitan Area Marketplace

  • No comprehensive cost indicator at MSA level – Evidence: proprietary claims data and Medicare

  • Comprehensive indicators exist for Medicare recipients and HMO enrollees

  • Hospital indicators can be compared by MSA

  • Cost of serving FEHBP enrollees can be compared

  • Focus on expenditures –limited attempts to separate P from Q


Cost shifting
Cost Shifting Metropolitan Area Marketplace

  • Focus of Nov 2002 – HCFO Conference

  • Common Claim: Low Medicare pay implies high private pay

  • Morrissey: No shifting unless relative bargaining power change exists or unexploited power exists

  • Cutler – Evidence of cost shift in the 1980s and reduced resource use in the 1990s


Who bears the burden
Who Bears the Burden? Metropolitan Area Marketplace

  • Argument parallels the incidence of the property tax (except as tax on labor)

  • National Level – Cost of health care is part of labor compensation, and labor bears most of the burden

  • Local Level – Cost of health care distinguishes MSA’s ability to attract and retain labor; thus, borne locally


Healthcare cost differences in the 1990s the influence of metropolitan area marketplace dynamics
Data Metropolitan Area Marketplace

  • 20 large MSAs in the Central USA

    • Initial focus on Milwaukee (and 5 close MSAs)

    • Add 14 other MSAs – Madison,WI + 13 with population greater than 600K and within 750 miles

  • HMO data – InterStudy + U of MN

  • Hospitals – American Hospital Association

  • Demographics – Area Resource File, Census

  • Physicians – Area Resource File

  • FEHBP – Blue Cross Blue Shield Intermediary


Key variables
Key Variables Metropolitan Area Marketplace

  • HMO Premium PMPM

  • Non-Governmental Payments to Hospitals per Non-Elder

  • Medicare Payments (A and B) per Enrollee

    • AAPCC through 1997

  • Old to Young Working Age Population

    • Population 45- 64 / Population 20-34

  • Competitiveness – Herfindahl for hospitals; #of HMOs*HMO Penetration


Health care costs
Health Care Costs Metropolitan Area Marketplace

  • HMO premium PMPM

    • 2000 range - $123 (DES) to $178 (MSP)

    • 1990 – 2000 growth – 33% (MEM) to 97% (MKE)

  • Non-Governmental Payment per Non-Elder

    • 2000 range - $587 (KC) -$1,165 (IND)

    • 1990 – 2000 growth - 18% (DAY) to 161% (LOU)

  • FEHBP – PPO - $PMPM

    • 2000 range - $114 (DAY) - $228 (MKE)


Table 1
Table 1 Metropolitan Area Marketplace


Medicare payment levels
Medicare Payment Levels Metropolitan Area Marketplace

  • Total Medicare Payments – 2000 PEPM

    • $347 (FTW) to $559 (PIT) ; $464 (USA)

    • 1990 – 2000 Growth: 23% (DET) to 58% (FTW) ; 69% - (USA)

  • Medicare Part A – 2000

    • $195 (FTW) to $353 (PIT); $263 (USA)

    • 1990 – 2000 Growth: 24% (DES) to 57% (COL)

      66% - USA

  • Medicare Part B – 2000

    • $140 (MAD) to $206 (PIT); $200.87 (USA)

    • 1990 – 2000 Growth: 11% (DET) to 96% (MEM)

    • 74% - USA


Table 2
Table 2 Metropolitan Area Marketplace


Metropolitan demographics
Metropolitan Demographics Metropolitan Area Marketplace

  • Per Capita Income

    • 2000 - $26,877 (FTW) to $32,540 (CHI) $28,738(USA)

    • 1990 – 2000 growth – all but St. Louis (45%-56%) – USA – 50%

  • Old/Young Ratio

    • 2000 – 84% (MEM) to 135% (PIT); 105% (USA)

    • 1990 – 2000 Growth - 23% (MEM) to 81% (MAD)

      USA – 44%


Table 3
Table 3 Metropolitan Area Marketplace


Medical care providers
Medical Care Providers Metropolitan Area Marketplace

  • The # of Hospitals declined – 14 out of 20

  • Commercial Admissions Share 2000

    • 37% (PIT) to 58% (MAD)

  • Herfindahl Index for Commercial Admits

    • 2000: 416 (CHI) to 4265 (FTW)

    • Growth 1990 – 2000: -4% (GRA) to 288% (CLE)

  • Physicians per 1,000 residents

    • 2000:1.6 (FTW,GRA) to 3.9 (MAD)

    • Growth 1990 – 2000: 0% (CIN) to 24% (DAY)

    • Specialists 2000: 1.0 (FTW) to 2.6 (MAD)


Table 4
Table 4 Metropolitan Area Marketplace


Hmo characteristics
HMO Characteristics Metropolitan Area Marketplace

  • HMO Penetration Rate

    • 2000: 11% (MEM) to 61% (MAD)

    • 1990 – 2000 Growth: 50% (MSP) to 705% (IND)

  • HMO Competitiveness

    • 2000:1.03 (OMA) to 7.27 (MAD)

    • 1990 – 2000 Growth: 50% (MSP) to 1992% (IND)

  • Capitation % - Specialist Revenue 2000

    • 20000% (OMA,DAY) to 67% (MAD)


Table 5
Table 5 Metropolitan Area Marketplace


Table 6 non governmental payments to hospitals
Table 6 Metropolitan Area Marketplace Non-Governmental Payments to Hospitals


Implications of regression
Implications of Regression Metropolitan Area Marketplace

  • Commercial payments per NE increased $51/year

  • HMO competition reduced hospital payment

  • Hospital payments related to MDs/1000

  • Medicare payments do not influence commercial payments

  • Age structure of population negatively influences commercial payment level

  • Hospital concentration is negatively but insignificantly related to commercial payment

  • Practice style (admissions/1000) matters


Table 7 hmo premium per member per month
Table 7 Metropolitan Area Marketplace HMO Premium per Member per Month


Implications of regression1
Implications of Regression Metropolitan Area Marketplace

  • HMO PMPM rose $6.13 per year

  • PMPM negatively related to hospital concentration level

  • HMO penetration rate positively influences PMPM (possible reverse causality)

  • HMO competitiveness measure does not influence PMPM

  • Medicare payment levels do not affect PMPM

  • Old/Young ratio does not affect PMPM


Conclusions
Conclusions Metropolitan Area Marketplace

  • Indianapolis, Madison, Milwaukee, and Omaha deliver relatively expensive commercial healthcare

  • Akron, Cincinnati, Grand Rapids, and Pittsburgh deliver relatively cheap commercial healthcare

  • Medicare cost shifting non-existent in the aggregate for either specification

  • Age structure plays a limited role in explaining hospital payments or HMO premiums

  • Relative bargaining power seems to matter for hospital payments


Future directions
Future Directions Metropolitan Area Marketplace

  • Increase the number of MSAs analyzed

  • Investigate bargaining power e.g., MD group practices membership

  • Investigate reverse causality (HMO PMPM) through evaluation of enrollee age structure

  • Differentiate effects of hospital concentration: scale and contracting economies vs. bargaining power


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