Published in Health Care
Simmer Simmer

Insurers to examine causes of cost disparities identified in GVSU report

BY Sunday, January 24, 2016 10:01pm

Armed with a new analysis that shows wide disparities in the costs of treatments in urban and rural areas in West Michigan, insurers now have an opportunity to examine the causes of those variances.

Grand Valley State University economists did not offer an explanation of the data that show wide variances in 2014 expenditures from one market to another — even those within relatively close proximity — to treat four medical conditions.

They are answers that Blue Cross Blue Shield of Michigan and Priority Health, the two leading health plans in the West Michigan marketplace, want to learn.

“The question is, is this the result of different patterns of care in those areas,” said Dr. Thomas Simmer, senior vice president and chief medical officer at Blue Cross Blue Shield. “(That) is an important thing to consider because then you can affect those patterns of care differently and save money and just do a better job of caring for patients.”

If it’s not care patterns, there are other variables such as comorbidities, or patients that have more than one chronic condition, that can explain the variances in expenditures, he said. So can a small number of high-cost cases within a ZIP code that has a relatively small sampling.

Differences in pricing, how care providers code charges, and the structure of health benefits within a market are possibilities as well, Simmer said. He notes that in the heavy manufacturing areas of Southeast Michigan, expenditures to treat low back pain are higher than in other areas of the state.

The findings in the 2016 Health Check report heighten awareness of the issue and the need for Blue Cross Blue Shield to ensure that best medical practices are equally shared across physicians and hospitals within its care network, Simmer said.

The report “is sort of pulling us in to say, ‘There’s some very interesting and compelling data. Let’s take a deeper dive and try to figure this out,’” Simmer said. “Because there are so many of these other variables besides care patterns that are in play, this would be a reason to look more closely to what are the ways people are practicing.

“It’s worthwhile investigating further to see what is the explanation. If that explanation involves care patterns that are simply not best practices, then what we need to do is transform those practices in those communities.”

For years, Blue Cross Blue Shield has sought to implement the primary care medical home model among physician practices in its care network. The medical-home model has taken hold more in urban markets, which tend to have more doctors employed in larger group practices affiliated with health systems compared to in rural areas, Simmer said.

“It may be a practical consideration that we may need to put more inducements in a program to assure that those who are more distant get serviced just as effectively as those that are nearby,” he said.


Using medical claims data from Blue Cross Blue Shield and Priority Health and analyzing it by ZIP code, GVSU’s 2016 Health Check report found that expenditures for four conditions “are consistently among the highest” in rural areas north and southwest of Grand Rapids. The report looked at expenditures for treating diabetes, high cholesterol, coronary artery disease and depression.

The survey “is demonstrating the complexity that’s behind the medical economics around health care” and indicates that “we still have a lot of work to do” in addressing geographic variances, said Dr. Jay Labine, chief medical officer at Priority Health.

To fully determine what’s behind the variances requires deeper analysis and looking at issues such as case mix in a given area, “social determinants” that affect behaviors, incidence rates, access to care, and pricing, Labine said.

Priority Health regularly seeks to dig deeper into its own data to determine whether there are price variances it needs to address, he said. The insurer also looks to identify segments of patient populations that “we need to better serve.”

Despite the local variances in expenditures that GVSU identified, the 13-county area analyzed is one of the lower-cost regions nationally for health care, ranking in the 18th percentile based on Priority Heath’s data, Labine said.

“I am encouraged that in our 13-county area we seem to be a good value for the population,” he said.


Among the GVSU report’s findings were that the per-patient expenditures to treat diabetes in 2014 in some areas in northern and southwestern Kent County, as well as northeastern part of 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-expenditure ZIP codes around Grand Rapids.

“In many cases, if you look at the range of the variation in expenditures, it’s double, sometimes almost triple, in some 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.

The existence of geographic variances in health care has been well documented for years on a national basis.

Priority Health made the phenomenon a focus last year by introducing a cost calculator 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.

Pricing for health care services does play “some role” in the expenditure variances, Labine said. Priority Health’s transparency effort “is designed to give patients and consumers better choices when they’re needing to make a health care decision,” Labine said.


This year’s Health Check report by GVSU provides the first-ever micro-level data on how per-patient expenditures vary across West Michigan.

The results were 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 authors state in the Health Check report.

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

Callison noted 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 in December 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 from $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 along with areas of Newaygo County had the highest expenditures for low back pain in 2014, ranging from $5,657 to $6,416.

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