Medicaid/Medicare Supply of Medical Services

Regional Variation in Diagnosis Frequency

For many years, the Dartmouth Atlas has chronicled how variation in medical resource use across the country.  Despite glaring differences in the cost and volume of care across the nation, regions with higher health care costs do not necessarily have better health outcomes.

However, medical treatment is a two step process.  First, the physician must diagnose a disease, and next the physician must decide the course of treatment given the disease the patient is assigned.  Thus, the reason regions have more intensive use of medical services could be 1) they are more likely to diagnose patients as having a more severe disease, or 2) they are more likely to use more expensive medical services in the treatment of that disease.

A recent paper in the New England Journal of Medicine does find that there is significant regional variation in how patients are diagnosed.  Simply examining regional variation in diagnoses may simply indicate that one region has more sick people than another.  To get around this problem, the authors examine what happens when Medicare beneficiaries move.  As people age, they are more likely to become sicker and thus accumulate more diagnoses.  However, individuals who moved to high cost regions were more likely to acquire more and more serious diagnoses than those who moved to lower cost regions.

To determine diagnose severity, the authors used Hierarchical Condition Categories (HCCs)–which Medicare uses as a risk adjustment mechanism to reimburse Medicare Advantage managed care plans–to create a risk score. Ranking individuals by risk score quintile,  this chart clearly shows a trend that when individuals move to higher cost regions, they are more likely to accumulate more diagnoses and increase their HCC risk score.

The authors conclude by pointing out the following:

A major concern about both payment reforms and performance-measurementinitiatives is their potential for adversely affecting behavior. For example, if providers are more highly compensated for treating patients with more diagnoses, they could conceivably be inclined to perform more intensive screening and diagnostic testing, with clear effects on costs and uncertain effects on health outcomes.

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