West Michigan’s cost advantages for health care services may be eroding.
According to the annual Health Check report from Grand Valley State University’s Seidman College of Business, treating coronary artery disease in West Michigan cost an average of $25,895 per member two years ago, an increase of 22 percent. That compares to an average per-member cost of $23,474 in the Detroit area.
The finding was “the one thing that jumped out at us this year” in the annual Health Check report, said Kevin Callison, an assistant professor of economics at GVSU.
Using data from Priority Health and Blue Cross Blue Shield of Michigan, GVSU found that average per-member expenditures in a four-county area of West Michigan to treat coronary artery disease rose sharply from 2014 to 2015 on top of a 23-percent increase from 2012 to 2013. According to the 2017 Health Check report, average expenditures to treat the disease in the Detroit area increased less than 20 percent in 2015.
2015 was the third straight year that average expenditures to treat coronary artery disease in West Michigan exceeded the Detroit area. Average per-member expenditures to treat five other chronic medical conditions — asthma, depression, diabetes, high cholesterol, and low back pain — remained higher in Detroit.
“We seem to be a lower-cost region, looking at all of these other chronic conditions compared to the east side (of the state), except for (coronary artery disease),” Callison said. “That’s been the largest increase we’ve seen in years.”
The increase to treat coronary artery disease (CAD) may also reflect broader issues emerging with rising costs in West Michigan, said Thomas Simmer, senior vice president and chief medical officer at Blue Cross Blue Shield.
Costs in the region have been rising at a higher rate than other areas of the state, he said.
“Grand Rapids was very fortunate for a long time to have the best of both worlds: low utilization and low unit costs,” Simmer said. “The big change over the interval is that it still enjoys favorable utilization, but no longer enjoys low unit costs. Its costs have risen faster than other communities’ (costs). The employers are noticing that in what they’re having to pay for their health care benefits.”
In presenting the Health Check report at a recent gathering, Callison could not offer any specific reason for why average annual expenditures to treat CAD have been rising so rapidly. Researchers who gathered and analyzed data wrote that they were unable to determine if it’s the result of higher prices or higher utilization rates.
Either way, “this trend is clearly concerning,” according to the report. The authors note that expenditures to treat CAD in Kent, Ottawa, Muskegon and Allegan counties increased by more than $17 million in 2015.
Tina Freese-Decker, president of the Spectrum Health Hospital Group, notes that the overall cost of care remains “significantly lower” in West Michigan than the Detroit area and that CAD represents a fraction of the care in the Health Check study.
Research from the Spectrum Health-owned Priority Health shows the costs to treat CAD increased from 2014 to 2015 at less that half of the rate of the 22 percent cited in the report, “which suggests our care management and physician coordination has been effective in moderating increases in cost,” Freese-Decker said in a statement to MiBiz.
“While inflation plays a role in overall and CAD care costs, other key drivers also are impacting cost. In particular, newly insured community members covered under the Affordable Care Act may use services more and experience higher costs," she said. “Additionally, pharmacy costs are on the rise across the nation and in our service area. Also, since CAD is expensive per episode, more so than other conditions, it increases the opportunity for any outlier case to be quite a bit more expensive, thus driving up average costs.”
GVSU’s annual Health Check report offers a glimpse into Michigan health care trends. The 2017 report also noted that outpatient visits in West Michigan per 1,000 members more than doubled from 2003 to 2014. That by was far the largest increase over the same period among the eight peer markets in the U.S. that GVSU analyzed and compared to West Michigan.
The report did not offer specific reasons for the trend, although authors suggested it could reflect the transition of more medical services and procedures to an outpatient setting versus inpatient services, and a change in billing practices.
Patient visits to doctors employed by a health system are billed as outpatient visits. As more doctors have opted to go to work for a health system, outpatient billings have risen accordingly, per the Health Check report.
“So what appears to be a doubling of per-capita outpatient visits to hospitals in Grand Rapids from 2003 to 2014 could simply be a change in billing practices,” according to the report.
The increase also could stem from an influx of patients to the Grand Rapids area seeking treatment. Or it also may have resulted from the continued consolidation of physician practices by health systems in the market, Simmer said.
Simmer believes physician consolidation has played a role in rising costs and expenditures in Grand Rapids, where the number of adults who say they cannot access health care because of costs matched the Detroit area in 2015.
While West Michigan “as a whole tends to have effective health care that is better coordinated than many communities … overall it does face a level of cost that is growing more rapidly than elsewhere,” Simmer said.
“There has been a more marked movement from private practice to employed practice by the health systems. The costs in Grand Rapids have gone up so significantly that its prior advantage in fewer people responding to the question, ‘Are you unable to access care due to cost?’ has gone up in Grand Rapids progressively,” he said. “That’s an unfortunate happening.”
As part of a health system, physicians are able to charge a facility fee, Simmer said. With its three local health systems — Spectrum Health, Mercy Health and Metro Health — Grand Rapids has fewer competitors than other regions and “they have greater pricing power,” he said.
“And so they’re able to raise their prices more than organizations in other communities,” Simmer said. “It’s one of those things that feeds on itself. Everyone wants to get paid what the others are getting paid in the region and it ups the ante.”
GVSU’s Callison could not directly correlate market consolidation in West Michigan to higher prices and costs, although that has been the result across the nation, he said.
“Nationally, physician and hospital consolidation, evidence shows, leads to higher prices. I don’t know if that’s what’s causing some of the things we’re seeing in the Grand Rapids area,” Callison said. “The Grand Rapids area is still a low-cost region for health care, but if you look at the trends nationally, and the trends in consolidation, physicians and hospitals, that does tend to lead to higher prices.
“Overall, we look pretty good, but there are these areas we need to keep an eye on.”
This story has been updated to include comment from Tina Freese-Decker, president of Spectrum Health Hospital Group.