New Medicare data show disparities in health care costs

Kaiser Health NewsMay 9, 2012 

— The government has identified hundreds of hospitals whose Medicare patients are incurring especially high bills, a first step toward using bonuses and penalties to encourage more efficient health care nationwide.

The new Medicare figures show wide variance among hospitals around the country, even ones just a few miles apart. In southern Kansas City, Mo., for example, the average patient admitted to St. Joseph Medical Center cost Medicare $19,247 during a stay and in the month afterward, 7 percent above the national median. Fifteen miles away, according to the data, an essentially similar patient admitted to Truman Medical Center-Lakewood cost Medicare $15,290, or 15 percent below the national median.

Medicare believes that identifying these discrepancies will help the government clamp down on excess medical care, which some health care researchers believe accounts for as much as one-third of the nation’s $2.6 trillion health care spending and is responsible for much of Medicare’s fiscal woes.

As the nation’s biggest insurer, Medicare’s proposal to link reimbursement to efficient care is expected to reverberate throughout the health care system when it starts in October 2014. The plan has alarmed hospitals, particularly since Medicare intends to hold hospitals accountable not just for the cost of services provided while at the hospital and in follow-up care, but for every test, treatment or stay that occurs 30 days after discharge, no matter the reason.

Hospital officials couldn’t readily explain the cost disparities, but some cautioned against reading too much into the Medicare figures.

“I wouldn’t take any of these cost measures to the bank,” said Dr. Tom Rosenthal, the chief medical officer of the UCLA Health System. “I think we need to know a lot more before we start publishing lists of hospitals and doctors and declaring who is most efficient.”

Kaiser Health News analyzed the new Medicare data and found that even after the severity of illness and overall health condition of patients were taken into account, Medicare paid 5 percent or more above the national median to care for patients from 657 hospitals, about one in every five. The cost for caring for Medicare patients at 1,150 other hospitals – or one out of every three – was at least 5 percent below the national median, according to the KHN analysis.

The data, known as the Medicare Spending per Beneficiary measure and published on Medicare’s Hospital Compare Website, provide new insights into one of the most perplexing questions about America’s high health care costs: Why do similar patients end up using more – or more expensive – health services than others?

The new data appear to reaffirm decades of studies showing that patients in some regions of the country are bigger users of health care services than other places. Patients treated at most or all hospitals in Los Angeles, Las Vegas, Newark, N.J., Dallas and Fort Worth, Texas, Miami and Fort Lauderdale, Clearwater and Bradenton, Fla., tended to cost more than the national median, which is $17,988.

Patients tended to cost Medicare less if they were treated at hospitals in the following cities: Anchorage, Des Moines, Honolulu, Fresno and Sacramento, Calif., Olympia, Wash., Wichita, Kan., Macon, Ga., and Portland, Ore.

The data for the first time allow for comparisons between hospitals from different parts of the country. Medicare says its new figures take into account regional and local differences in patient incomes, the numbers of medical residents trained at individual hospitals and the fact that hospitals in some places get higher Medicare reimbursements to offset higher wages for their workers.

In some regions, such as Los Angeles, the most expensive patients were ones who had been admitted to community hospitals.

In other places, such as Washington, D.C., the most expensive patients came from a teaching hospital. The average patient at MedStar Georgetown University Hospital cost Medicare $18,708, or 4 percent above the national median. The hospital with the least expensive patients was Howard University Hospital, also a teaching hospital, albeit one across town that generally serves lower-income residents, where patients cost Medicare $16,369, or 9 percent below the median.

Georgetown officials didn’t respond to requests for comment. Howard officials said they didn’t have an explanation as to why their hospital’s patients cost Medicare less.

“We’d have to dig into that calculation,” said Aldwin Lindsay, Howard’s chief financial officer.

In Kansas City, officials at St. Joseph’s corporate headquarters did not respond to requests for comment. Truman Medical Center-Lakewood said in a statement: “It is important that there be a comprehensive analysis of this data and its variables before final reimbursement conclusions are reached.”

Nancy Foster, a vice president at the American Hospital Association, said the data do not answer key questions: Did the patients that got more services fare better than others? Could the patients that cost Medicare less actually have benefitted from more care?

“What we don’t know is if those additional investments yield differences in outcomes,” Foster said.

(Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.)

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