The Latest Financial Scandal: Variations in Health Care

Jul 31, 2013, 9:54 AM, Posted by

Head Shot of Susan Dentzer Susan Dentzer

Imagine the outrage if an investigation uncovered a decades-old scheme in which hundreds of billions of taxpayer dollars were siphoned off to pay for health care of little to no value. That finding would probably mean that millions of Americans subjected to this unnecessary care could have been harmed as a result.

Guess what? An investigation—actually a new report from the Institute of Medicine—just did "uncover" such a scheme. And much of the original detective work was done by researchers at Dartmouth, supported in part through grants from the Robert Wood Johnson Foundation.

The report, by the IOM’s Committee on Geographic Variation in Health Care Spending and Promotion of High-Value Care, synthesizes and advances several decades of research showing huge geographic variations in spending on health care that doesn’t correspond to improved health outcomes. As the report highlights, much of this work has come to light over the past two decades through the Dartmouth Atlas of Health Care, which the foundation has supported since 1994.

As the map below shows, when the nation is divided up into "hospital referral regions"—regional markets for tertiary or complex health care—striking disparities emerge.  Spending in some regions of the country is about a third to a half more for each Medicare beneficiary than in others (even after adjusting for differences in the ages, sex or races of beneficiaries and regional differences in the prices charged for health care).  Higher spending regions do not exhibit better health outcomes. In fact, other work by Dartmouth researchers has suggested that, if anything, outcomes in higher spending regions of the country are frequently worse.

Map showing the price of adjusted Medicare spending.

The Affordable Care Act charged the Secretary of Health and Human Services to contract with the IOM to study this geographic variation in health care spending—not just in Medicare, but also in Medicaid and commercial health insurance. The IOM was also directed to recommend any changes in Medicare payment to address geographic variation and improve the value of health spending (Section 1159, ACA).

Over three years, the IOM committee delved into the work by Dartmouth researchers, the Medicare Payment Advisory Commission and others, and also commissioned new studies on variations in the care paid for by commercial payers and Medicaid.

What it found was sobering:

  • Geographic variations in health care spending and utilization are real and pervasive "across geographic units and health care services and over time." Some variation is presumably acceptable; patients in one area might be sicker than in another. But much of the variation appears to be unacceptable, stemming from inefficient health care delivery and overuse of low-value care.
  • The drivers of these variations in Medicare are different from the drivers of variations in care that is paid for by, commercial payers. In Medicare, about three-quarters of the variation stems from regional differences in spending on post-acute services—home health care, skilled nursing care, hospice care, rehabilitation and long-term care hospitals—and the next biggest chunk, 27 percent, stems from variations in acute inpatient care in hospitals.  In commercial insurance, by contrast, most of the variation stems from different prices charged by providers.
  • Variations don’t just exist across geography; they exist across just about every level of health care, including individual hospitals and physician practices.  Examining two categories of care in Massachusetts, in fact,  the committee found that “variation among specialists who work in the same group practice is as great as that among specialists across the entire state.”

The IOM report recommended against a solution that Dartmouth researchers and some lawmakers had advocated to adjust Medicare payments by geography. Instead, it urged the Centers for Medicare and Medicaid Services to continue testing payment reforms aimed at encouraging “clinical and financial integration of health care delivery systems and better coordination of care among health care providers.  And, importantly, the report suggested that CMS pilot some programs that would give Medicare beneficiaries financial incentives to become parts of these arrangements, and share in any savings that resulted from higher value-added care.

Hearkening back to the Dartmouth map, the report also made pointed references to the role of fraud and abuse in the provision of health care services, and cited estimates that these could cost up to $98 billion a year. Miami, Fla., is a known hotbed of fraud in home health agencies and durable medical equipment, and the U.S. Office of the Inspector General has identified areas of other states, including Texas, Louisiana, Illinois, New York and Michigan, as at high risk for Medicare fraud as well. (To clamp down on fraud, in fact, last week the Centers for Medicare and Medicaid Services announced a temporary ban on allowing new home health agencies in the fraud "hot spots" of Miami and Chicago to participate in Medicare.) The IOM report noted that many of these areas also boast the hospital referral regions with the highest per-beneficiary Medicare spending in the country.

Chart showing the highest spending Medicare HRR's after adjustment.

It’s alarming enough to think of $98 billion a year being poured down the drain on "care" that is fraudulent.   It’s if anything more troubling to think of a health care system so devoid of reason that even doctors sitting in adjacent offices are practicing wildly different care—and causing excess spending totaling hundreds of billions of dollars more as a result.   And as we know from countless studies, much of that care is unnecessary and even harmful to patients.

Now that the word is out—more forcibly than ever—let the outrage begin.

Editor's Note: Susan Dentzer, senior policy adviser for the foundation, is also a Dartmouth graduate, chair emerita of the Dartmouth Board of Trustees and a member of the Board of Overseers of the Geisel School of Medicine at Dartmouth.