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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
  • 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
  • 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
  • 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
  • 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?
  • 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
slide7
Data
  • 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
  • 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
  • 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)
medicare payment levels
Medicare Payment Levels
  • 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
metropolitan demographics
Metropolitan Demographics
  • 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%

medical care providers
Medical Care Providers
  • 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)
hmo characteristics
HMO Characteristics
  • 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)
implications of regression
Implications of Regression
  • 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
implications of regression1
Implications of Regression
  • 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
  • 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
  • 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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