Local Health Care Norms and Prices Lead to Cost Disparity Across States

February 14, 2018 HealthInsight Oregon & Network for Regional Healthcare Improvement

The considerable differences in the cost of health care in five states are largely driven by local patterns of resource use and pricing, according to a report released by the Network for Regional Healthcare Improvement (NRHI), a national nonprofit representing regional health improvement collaboratives (RHICS) and state partners working to achieve better, more affordable health care.

Healthcare Affordability: Untangling Cost Drivers is NRHI’s second annual report comparing the total cost of care in various U.S. regions. Like other recent studies, Untangling Cost Drivers finds that health care costs vary widely between states. The NRHI report, however, is focused on how different care delivery patterns and local prices have led to significant cost differences between Oregon, Utah, Colorado, Minnesota, and Maryland.

Each state’s numbers tell a story, giving stakeholders insight into the role that local policies, demographics, and market factors make in driving health care costs.

In Oregon, the data are consistent from the previous report in showing resource use (utilization) is low but prices are high. These two factors combine to place Oregon equal to the benchmark. High prices could be attributed to the influential negotiating power between providers and health plans; areas with a high degree of provider consolidation, or with limited competition, often have higher prices.

“In Oregon, we’ve seen clinics and providers dig deep in the data and start making practice changes,” said Mylia Christensen, executive director, HealthInsight Oregon and Q Corp. “Health plans and hospitals are thinking about how the data could be used to support collaboration about improvement activities. Policymakers have considered the benchmark report a key piece of the puzzle as the state works to deliver high-value care to all Oregonians. Consumers and purchasers have encouraged us to accelerate public reporting of provider and clinic cost and quality data. This report, coupled with our regional Total Cost of Care work, furnishes a new compass allowing us to focus and understand what is working, or not, to reduce health care costs and improve the health of our communities.”

Across states, inpatient care saw the greatest variation in price. Hospital prices were 16 percent higher than the benchmark in Oregon and Colorado compared to 12 and 14 percent below the benchmark in Maryland and Utah, respectively. This variability occurred in every category of care except pharmacy pricing, which is largely attributable to the influence of a few, large pharmacy benefit managers and pharmaceutical manufacturers’ national pricing policies.

“With one of every six dollars in the American economy going to health care, it’s imperative that we determine what is driving health care costs,” said Elizabeth Mitchell, president and CEO of NRHI. “You can’t fix what you don’t understand, but with reliable and actionable information on cost drivers, we can enable health care stakeholders to make the changes needed to bring down the cost of care. America’s health care cost crisis will not be solved by data – but it cannot be solved without it.”

NRHI has collaborated with several of its member RHICs on its Total Cost of Care initiative since November 2013. The national comparison detailed in this report is supported by practice-level reporting that each member performs in its region. In 2015 alone, health care cost information on more than 5 million patients attributed to approximately 20,000 individual physicians was shared in seven regions across the country. Oregon, along with Utah, Maryland, and Minnesota, participated in the 2014 benchmark study released by NRHI in January 2017. Despite population changes in several of the participating states, the 2015 report found year-over-year consistency, which highlights the regional norms in care delivery and pricing.

With the publication of this report, NRHI now has two sets of regional cost comparisons, and another round is scheduled for release in late 2018. With three years of data, trends will begin to emerge to support existing hypotheses and/or challenge long-held assumptions.

Read the full Benchmark Report here >>>