Report Finds Wide Variation in Average Cost of Healthcare Across the US

Variation in the total cost of healthcare in 6 regions is consistently driven by local patterns of healthcare usage and pricing, according to a new report from the Network for Regional Healthcare Improvement (NRHI).

Studying healthcare utilization and cost patterns in Oregon, Utah, Colorado, Minnesota, St. Louis, Missouri, and Maryland over the last 5 years, researchers compared total cost of care for those with private insurance in each of the states using the average cost of healthcare for comparable populations as its benchmark.

The review highlighted stark differences in average healthcare costs, with Maryland falling 20% below the average and Colorado landing 19% above average. St. Louis and Utah fell 6% and 4% below average, respectively, while Minnesota and Oregon landed 11% and 4% above average, respectively.

Maryland’ success can be attributed to the state’s All-Payer Hospital Model, explained Ben Steffen, executive director, Maryland Health Care Commission, during a NRHI webcast.

“The state of Maryland embarked on this initiative with CMS to lower the growth in all-payer hospital revenue per capita to reduce Medicare spending in the hospital setting and to reduce hospital readmissions, as well as potentially avoidable readmissions,” he said. “All of those play well with this exercise, and although it’s focused on Medicare, there’s a spillover effect; doctors treat patients the same no matter what payment category.”

Pharmacy pricing showed the least variability, which is largely due to the influence of national pricing policies developed by pharmacy benefit managers and pharmaceutical manufacturers, according to the report. Meanwhile, inpatient care showed the greatest variability, with Colorado’s hospital prices 31% higher than the average compared to St. Louis’ prices, which were 23% lower than average.

In terms of resource use, outpatient care demonstrated the widest variation, with Maryland coming in at 26% below average and St. Louis coming in at 29% above average. Professional services showed the least variation.

In Colorado, Maryland, Oregon, and St. Louis, price was the prominent driver in total cost, while resource use was the prominent driver in Minnesota and Utah. In Oregon and Utah, prices were above average, but utilization was below. In St. Louis, resource use was above average while prices fell below average.

Using this information, regions have been sharing data with different stakeholders to provide insight into the role of local policies, demographic makeup, and market factors in driving healthcare costs, as well as to stimulate change. Five of the 6 regions share detailed cost of care data with providers.

“HealthInsight Oregon, one of the original regional health improvement collaboratives (RHICs) participating in the project, has been sharing the information with providers, payers, and policymakers for several years,” wrote the researchers. “Legislators have convened several workgroups addressing various components related to cost.”

In light of the report, Meredith Roberts Tomasi, associate executive director for HealthInsight Oregon, predicts that the state’s legislature will focus on prices, as well as a recent recommendation from a legislative taskforce to take a multistakeholder statewide approach to total cost of care across service areas.

Colorado has utilized information from the report as well, with the Center for Improving Value in Health Care, the RHIC serving Colorado, looking at regional variations within the state and triangulating the data against other publicly available sources. They consistently found that the state’s high use of outpatient services and the high prices of those services have the greatest impact on the total cost.

Based on the findings, the RHIC worked with legislators in the state to develop several bills aimed at increasing healthcare transparency in the state, including requiring every freestanding outpatient facility to bill using its own unique national provider identifier. This change, according to the report, will allow the RHIC to identify these facilities as freestanding in datasets, rather than being lumped in with other facilities, so that analyses on the care delivered by these facilities, and the associated cost of care, can be evaluated.