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


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

    • 2000 0% (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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