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GVSU study finds health care expenditures vary greatly across West Michigan

BY Friday, January 08, 2016 10:05am

An annual report by Grand Valley State University provides further data on how widely spending on health care can vary from one market to another — even those within relatively close proximity.

An analysis using medical claims data from Priority Health and Blue Cross Blue Shield of Michigan tracked by ZIP codes found that expenditures for four conditions “are consistently among the highest” in rural areas north and southwest of Grand Rapids, according to GVSU’s 2016 Health Check report.

The report looked at costs for the treatment of diabetes, high cholesterol, coronary artery disease and depression.

For example, per-patient expenditures to treat diabetes in 2014 in some areas in the northern and southwestern part of Kent County, as well as in northeastern Ottawa County and an area within Grand Rapids, were as much as 10 percent to 33 percent higher than those in suburban areas.

The disparities in expenditures were even greater to treat coronary artery disease. They ranged from 61 percent to 92 percent higher in areas of Newaygo, Muskegon, Barry and Allegan counties compared to patients living in the lowest-cost ZIP codes around Grand Rapids.

“What we find are really large variations in expenditures across different ZIP codes,” said Kevin Callison, an assistant professor of economics at GVSU’s Seidman College of Business who co-authored the 2016 Health Check report. “In many cases, if you look at the range of the variation in expenditures, it’s double, sometimes almost triple, in some ZIP codes.”

The existence of geographic variances in health care has been consistently documented for years on a national basis. Priority Health has made the phenomenon a focus by introducing a cost calculator last year that allows users to look up the prices charged for a common medical procedure. The insurer rewards members for opting to use the low-cost care provider in the market.

This year’s Health Check report by GVSU provides the first-ever micro-level data on how per-patient expenditures vary across West Michigan, although authors did not delve into the potential causes for the disparities.

“We don’t really know why this is happening,” Callison said of variations in general. “That’s been kind of the characteristics of the whole variations literature for the last 30 years or so. We know it exists and a lot of people have theories about why it exists, but there’s no real solid answer.”

However, Callison suggests it could stem from a number of factors. Differences in prices charged by care providers and the clinical protocols used by physician practices and hospitals that serve each ZIP code are possibilities. The presence of “sicker patients” in a given area does not appear to play a role, he said.

“We know some of these areas are high expenditure. But we don’t know if they’re high expenditure because they’re higher priced or (because) the people there are using more care,” Callison said. “It may just be that they’re using more services there. But we’re not even able to answer that question, let alone why these variations exist.

“It could be that difference in physician practice style. It could be differences in the health systems in different areas, competition and market structure. All of those things could play a role.”

The Blue Cross and Priority Health data used for the analysis was adjusted for income and education differences in each ZIP code — variables that can drive heath care expenditures — to assure an “apples-to-apples” comparison, said Leslie Muller, an associate economics professor at GVSU.

“On average, over the conditions that we examined, age, income, and education can explain approximately 15 percent of the variation in expenditures at the ZIP code level,” the Health Check report states.

Whatever the reason, spending variations have major cost implications for health care.

Callison notes that past research suggests that bringing high-expenditure areas in line with low-expenditure areas could cut 30 percent annually off of the nation’s health care bill, “which is a tremendous amount of money.”

“The potential, if you can address these variations in a way that doesn’t harm patient health, it’s enormous,” he said. “You solve a lot of budgetary issues with 30 percent of health care expenditures.”

The federal Centers for Medicare and Medicaid last month estimated that U.S. health care spending in 2014 grew 5.3 percent to exceed $3 trillion, accounting for 17.5 percent of the nation’s GDP.

For West Michigan, the GVSU analysis found that annual expenditures for diabetes care ranged from a low of $9,307 and $12,670 in some ZIP codes, to a high of $14,216 and $15,674 in others. Annual expenditures for coronary artery disease ranged from $12,056 to $18,583 in ZIP codes on the low end, to between $23,183 and $30,051 on the high end.

Annual spending to treat depression was lowest in ZIP codes across Kent and Ottawa counties, ranging $7,444 to $11,582. Spending was highest in stretches of Allegan, Van Buren and Barry counties south of Grand Rapids, and in Muskegon, Newaygo, Oceana and Mecosta counties to the north, ranging from $13,236 to $16,788.

In ZIP codes throughout Kent and Ottawa counties, expenditures were the lowest to treat low back pain with a range of $3,658 to $4,756 per patient. They were also low in smaller areas in northern Muskegon and northwest Allegan counties. Some ZIP codes in southwest Muskegon County and neighboring northwest Ottawa County had the highest expenditures for low back pain in 2014 – $5,657 to $6,416 – along with areas of Newaygo County.

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