Managed Care Medicare Supply of Medical Services

McAllen’s Private Insurers spend less than El Paso’s?

For the under-65 population insured by Blue Cross, total spending per-member-year in McAllen, Texas, was 7 percent lower than in El Paso, Texas.  By contrast, Atul Gawande’s 2009 New Yorker article, which used data from theDartmouth Atlas of Health Care on variations in Medicare spending, showed that per capita spending in McAllen was 86 percent higher than in El Paso.

Price-adjusted differences in Medicare spending can be found here.  Although inpatient spending in McAllen was 63% higher than in El Paso, most interesting is that home health spending in McAllen was 4.6 times the average spending in El Paso and 7.1 times the national average!

The authors claim that private insurance may be better able to control costs.  “For a number of reasons, insurers generally are reluctant to intrude on medical decision-making,” says lead study author Franzini.  “But the fact that these utilization management mechanisms exist may prompt some physicians who might otherwise overuse certain services to exercise more restraint.”  Blue Cross Blue Shield (BC/BS) uses  mechanisms such as prior authorization for inpatient admissions, care management services for high-severity and/or high expense beneficiaries, and triggers to activate care management processes when a catastrophic event occurs or a patient incurs claims higher than $50,000 per month.

However, because there is more variability in cost in Medicare beneficiaries, it is unclear how much an effect utilization controls would have on Medicare spending.  For instance, total cost for the typical BC/BS beneficiary were $2,266 in McAllen and $2,428 in El Paso.  For Medicare beneficiaries in these cities, the corresponding figures were: $14,817 and $7,947.  Because Medicare beneficiaries need more care, there is likely more opportunity to induce care and increase rates.  For instance, the authors “…found less regional variation in medical services use for ischemic heart disease in the under-sixty-five privately insured population than in the (mostly) over-sixty-five Medicare population.”  However, because the Medicare population is sicker with more comorbidities than the non-Medicare population, there is much more latitude for physician decision-making.  It is unclear whether the private insurance cost control mechanisms would have a large effect on the spending levels of Medicare beneficiaries.

Additionally, many BC/BS beneficiaries likely have minimal spending (i.e., either $0 or visit a physician once per year).  For these beneficiaries, there is little room to influence care levels.  It would be interesting to view the variation beneficiary cost condition on having incurred positive costs.

Nevertheless, none of these reasons explains why there would be differences in spending across the two regions.  Is private insurance really a better alternative?  Are physicians and patients just as satisfied with the coverage they get from BC/BS as what they receive from Medicare? Imposing cost controls such as pre-authorization and care management services can certainly reduce cost.  The question is, will the Medicare beneficiary population agree to these restrictions.  If not, today’s working age American will be footing an even heftier bill as the baby boomers continue to retire.

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