Session 35 Lecture: Medicare Payment is Different than Commercial!

Session 35 L, Medicare Payment is Different than Commercial!

Moderator: Rebecca Owen, FSA, MAAA

Presenters:

Zack Cooper, Ph.D. James Patrick Hazelrigs, ASA, MAAA

The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured*

Zack Cooper, Yale UniversityStuart Craig, University of PennsylvaniaMartin Gaynor, Carnegie MellonJohn Van Reenen, London School of Economics

www.healthcarepricingproject.org

Introduction

• The average premium for employer-sponsored family health coverage was $17,545 in 2015; 20% of those under 65 with full insurance report problems paying medical bills

[Kaiser Family Foundation, 2015; Kaiser Family Foundation, 2016]

• Wide ranging analysis of variation in health care spending via Medicare suggests quantity of care given drives spending variation

[Dartmouth Atlas work: i.e. Fisher et al., 2009; Wennberg et al., 2002]

• However, results may not generalize to private markets where prices are not set administratively

[Philipson et al. 2010;Chernew et al., 2010; IOM, 2013; Franzini et al. 2010]

• The challenge: almost no nation-wide hospital-specific price data and scant data on spending for privately insured

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This Paper

• Analyzes employer sponsored insurance claims from Aetna, UnitedHealth, and Humana that includes negotiated transaction prices

• Studies the variation in private health care spending, analyze the contribution of prices to spending variation, and examine providers’ price variation

Key Findings – Price Plays Crucial Role in Spending by Privately Insured

1. Low correlation (0.140) between Medicare and private spending per person;

2. Price explains large portion of national variation in inpatient private spending;

3. Substantial variation in prices, both within and across markets;

4. Higher hospital market concentration is associated with higher hospital prices;

2

This Paper

• Analyzes employer sponsored insurance claims from Aetna, UnitedHealth, and Humana that includes negotiated transaction prices

• Studies the variation in private health care spending, analyze the contribution of prices to spending variation, and examine providers’ price variation

Key Findings – Price Plays Crucial Role in Spending by Privately Insured

1. Low correlation (0.140) between Medicare and private spending per person;

2. Price explains large portion of national variation in inpatient private spending;

3. Substantial variation in prices, both within and across markets;

4. Higher hospital market concentration is associated with higher hospital prices;

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Outline

I. Overview of the HCCI Data and Price Calculations

II. Public/Private Spending and Price/Volume Decomposition;

III. Variation in Hospital Prices Across Markets;

IV.Variation in Hospital Prices Within Markets;

V. Predictors of Provider Prices;

VI. Implications

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The Data and Our Price Measures

Overview of the HCCI Data

• Claims level data from the Health Care Cost Institute

• Includes ESI claims from Aetna, UnitedHealth Group, and Humana for individuals with coverage from from 2007 – 2011;

• 88.7 million unique individuals;• Covers approximately 27.6% of Americans with ESI• 1% of GDP, 5% of health spending• Coverage in all 306 hospital referral regions in the US

• Data includes the price providers charged, the negotiated contribution of the payers, and the contribution of patients via co-payments and co-insurance;

• Able to link to a wide array of external data6

National Coverage of Data

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•High Shares: Texas, Arizona, Colorado, Florida, Georgia, Kentucky, Ohio, Wisconsin, New Jersey, DC, and Rhode Island have a high share of HCCI data.

•Low Shares: Vermont, Michigan, Alabama, Wyoming, Montana, South Dakota, and Hawaii

WA16.4

OR16.0

CA15.6

AK15.2

HI.1.9

MT8.8

NM16.7

WY9.4

NV13.7 UT

19.1

AZ39.8

CO33.6

ID13.3

TX42.9

ND12.9

S.D.7.8

NE20.0

KS21.7

OK26.3

MN22.7

IA14.9

MO30.0

AR16.6

LA27.9

WI34.5

IL26.8

KY44.2

IN18.0

OH34.3

WV11.5

TN.22.0

MS15.9

AL8.4

GA44.6

FL39.8

SC15.8

NC20.2

VA23.8

PA20.0

NY19.0

ME25.4

MI9.9

VT6.6

NH13.7

MA12.7RI

31.0

CT28.0

NJ39.2

MD28.8

DE29.2

DC37.2

HI1.9

Note: Coverage rates were calculated using HCCI enrollment data. Statewide insurance coverage totals were derived from the American Community Survey for 2011.

Data Sample

• Limit to those age 18-64 with ESI coverage and at least 6 months of coverage;

• Three Samples

• Spending Sample: All physician, outpatient, and inpatient claims (no Rx)

• Inpatient Sample: All inpatient facilities claims

• Procedure Samples: Hip and knee replacements, vaginal and cesarean delivery, PTCA, colonoscopy, and lower limb MRI;

• Limit observations to those with 1st percentile < price <99th percentile; exclude those with length of stay in top 1% by DRG/Condition, require match to AHA;

• Limit to providers doing 50 episodes per year for inpatient analysis per year; 10 conditions for conditions per year.

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Definition of Price

• Price captures the amount a facility was paid (including by insurer and patient);

• Identify risk-adjusted hospital prices for seven procedures identified using very narrow coding (i.e. no complications, no revisions), exclude LOS in top 1%, single ICD-9CM/DRG combo, ICD-9 Diag. code for colonoscopy; CPT-4 code for MRI*;

• Create a hospital inpatient price index that is conditional on who a hospital treats and what mix of DRGs it delivers;

9* For Medicare comparisons we use DRGs to define cohorts

How Medicare Sets Prices

Operating base

payment rate

Hospital Wage Index Adjustment

Base Rate Adjusted for Geographic

Factors

MS-DRG Weight

Adjusted Payment

Rate

Indirect Medical Education Payment

Disprop. Share (DSH)

Payment

Payment for MS-DRG

=

x =+

Hospital Adjusters

=

Wage Index > 1.0

Non-labor related portion

Wage Index ≤ 1.0

68.8% adjusted for area wages

62.% adjusted for area wages

+

Calculating Medicare PPS Payments

11

Charge/Negotiated Price/Medicare Fee Ratio

12Notes: Prices are averaged from 2008 – 2011, put in 2011 dollars. Note that we only include hospital-based prices – so we exclude, for example, colonoscopies performed in surgical centers and MRIs that are not carried out in hospitals.

Knee Replacement Negotiated Prices and Charges ‘08 – ‘11

13Notes: Regression-adjusted prices presented in 2011 dollars

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Spending Analysis and Decomposition

Medicare and ESI Overall Spending Per Beneficiary

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Correlation of Public and Private Total Spending Per Beneficiary: 0.140

Note: Data on Medicare is for 2011 and from the Dartmouth Atlas. Spending for Medicare beneficiaries includes Part A & B and is risk adjusted by age, race, and sex. Spending on private enrollees is adjusted by age and sex and includes all inpatient, outpatient, and physician claims

Scatter Plot of Ranking of Medicare Spending Per Beneficiary and Private Spending Per Beneficiary

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Notes: Data on Medicare spending was downloaded from the Dartmouth Atlas http://www.dartmouthatlas.org/. An HRRwith a rank of 1 has the lowest spending per beneficiary of all HRRs. An HRR with a rank of 306 has the highest spendingper beneficiary of all HRRs. Overall spending does not include pharmaceutical spending.

http://www.dartmouthatlas.org/


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Formal Decompositions of Variance

The variance of spending per DRG d may be decomposed into three components:

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𝑣𝑣𝑣𝑣𝑣𝑣(ln(𝑝𝑝𝑑𝑑𝑞𝑞𝑑𝑑)) = 𝑣𝑣𝑣𝑣𝑣𝑣(ln(𝑝𝑝𝑑𝑑)) + 𝑣𝑣𝑣𝑣𝑣𝑣(ln(𝑞𝑞𝑑𝑑) + 2𝑐𝑐𝑐𝑐𝑣𝑣(ln(𝑝𝑝𝑑𝑑) , ln(𝑞𝑞𝑑𝑑))

Captures share of variance in spending attributable to variation in prices across HRRs

Captures share of variance in spending attributable to variation in the quantity of care across HRRs

The covariance term captures the share of variance attributable to the covariance of price and quantity.

Come up with price/quantity contribution by averaging DRG results by spending per DRG

Decomposition Results

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Private Medicare

Share PriceShare

QuantityShare

Covariance Share PriceShare

QuantityShare

Covariance

Cardiac valve & oth maj cardiothoracic proc w/o card cath w CC 51.2% 17.8% 31.0% 11.7% 48.1% 40.3%Cardiac valve & oth maj cardiothoracic proc w/o card cath w MCC 50.4% 13.4% 36.2% 11.3% 46.8% 41.8%Cellulitis w/o MCC 39.2% 97.4% -36.6% 7.3% 96.8% -4.1%Circulatory disorders except AMI, w card cath w/o MCC 43.6% 60.2% -3.8% 6.6% 101.1% -7.7%Coronary bypass w cardiac cath w/o MCC 56.1% 14.2% 29.8% 6.1% 72.2% 21.7%Craniotomy & endovascular intracranial procedures w MCC 40.8% 19.0% 40.2% 7.8% 54.5% 37.8%Esophagitis, gastroent & misc digest disorders w/o MCC 57.7% 80.3% -38.0% 10.7% 104.3% -15.0%Infectious & parasitic diseases w O.R. procedure w MCC 67.2% 5.0% 27.8% 9.0% 62.4% 28.6%Kidney & urinary tract infections w/o MCC 53.8% 87.2% -41.0% 9.9% 107.2% -17.0%Major cardiovasc procedures w MCC or thoracic aortic anuerysm repair 59.7% 9.6% 30.7% 11.7% 52.1% 36.3%Major cardiovascular procedures w/o MCC 52.1% 26.5% 21.3% 10.9% 69.6% 19.5%Major joint replacement or reattachment of lower extremity w/o MCC 55.4% 73.6% -28.9% 12.3% 101.7% -14.0%

Average Shares (weighted by spending) 45.9% 36.2% 17.9% 9.4% 76.6% 14.0%

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National Variation in Prices

Inpatient Prices

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Inpatient Prices—normalized using the wage index

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The Price of a Knee Replacement is Higher in Grand Junction than it is in Boston

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Private Knee Replacement Prices

National Variation in Prices and Medicare Fees: Knee Replacement

Note: Each column is a hospital; Medicare prices are calculated using Medicare Impact Files

Medicare Knee Replacement PricesMean 12,986Min - Max 10,254 - 24,021p10-p90 11,213 - 15,441IQR 11,734 - 13,605p90/10 ratio 1.38IQR ratio 1.16Coefficient of Variation 0.15Gini Coefficient 0.07

Mean 23,102Min - Max 3,298 - 55,825p10-p90 14,338 - 33,236IQR 17,365 - 27,151p90/10 ratio 2.32IQR ratio 1.56Coefficient of Variation 0.33Gini Coefficient 0.18

Private Knee MRI Prices

National Variation in Prices and Medicare Fees: Knee MRI

Note: Each column is a hospital; Medicare prices are calculated using Medicare Impact Files

Medicare Knee MRI PricesMean 353Min - Max 293 - 546p10-p90 325 - 389IQR 335 - 366p90/10 ratio 1.2IQR ratio 1.09Coefficient of Variation 0.08Gini Coefficient 0.04

Mean 1,331Min - Max 260 - 3,174p10-p90 745 - 2,036IQR 960 - 1,629p90/10 ratio 2.73IQR ratio 1.70Coefficient of Variation 0.38Gini Coefficient 0.21

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Within Market Variation in Prices

Knee Replacement Facility Prices Within Markets

Denver, CO Atlanta, GA Manhattan, NY

Columbus, OH Philadelphia, PA Houston, TX

Note: Each column is a hospital. Prices are regression-adjusted, measured from 2008 – 2011, and presented in 2011 dollars.

Colonoscopy Facility Prices Within Markets




Lower Limb MRI Facility Prices Within Markets




Lower Limb MRI Facility Prices Within Markets




Private Price Medicare Reimbursement

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Drivers of Price Variation

Correlates of Hospital Prices

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Providers’ Negotiated Prices

Quality of the Provider?

• Clinical quality

• Hotel-related services

• Perceived quality

What is associated with high hospital prices?

Hospital & Local Area Characteristics?

• Teaching status

• Ownership

• Hospital size

• Local costs

• Local wage rates

Medicare/Medicaid Penetration?

• Hospitals’ share of patients funded by Medicare or Medicaid

• Medicare payment rates

• Share of uninsured

Market Structure?

• Provider market structure

• Payer market structure

Bivariate Correlations: Price and Local and Hospital Characteristics

35Notes: The x-axis captures the correlations between key variables featured in our regression and our hospitals’ inpatient prices averaged from 2008 – 2011 and inflation adjusted into 2011 dollars. The bars capture the 95% confidence intervals surrounding the correlations.

Hospital Market Power Raises Hospital Prices

40

Note: An asterisk indicates significance at the 5% level. This figure is based on OLS estimates for 8,176 hospital-year observationswith standard errors clustered at the HRR-level in parentheses. The controls include insurance market structure, HCCI insurer share bycounty, hospitals use of technology, U.S. News & World Report Ranking, hospital beds, indicators for teaching hospitals, government-owned hospitals, and not for profit hospitals, the Medicare base payment rate, the share of hospitals’ patients that are funded byMedicare, and the share funded by Medicaid. The regressions also include HRR fixed effects and year fixed effects.

15.3%*

6.4%*

4.8%*

Hospital Market Power and Hospital Price

Greater Insurance Market Power Lowers Hospital Prices

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Note: An asterisk indicates significance at the 5% level. This figure is based on OLS estimates for 8,176 hospital-year observationswith standard errors clustered at the HRR-level in parentheses. The controls include hospital market structure, HCCI insurer share bycounty, hospitals use of technology, U.S. News & World Report Ranking, hospital beds, indicators for teaching hospitals, government-owned hospitals, and not for profit hospitals, the Medicare base payment rate, the share of hospitals’ patients that are funded byMedicare, and the share funded by Medicaid. The regressions also include HRR fixed effects and year fixed effects.

- 4.2%*

- 9.0%*

- 15.2%*

Insurer Market Power and Hospital Price

Bigger, High Tech Hospitals Have Higher Prices

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Note: An asterisk indicates significance at the 5% level. This figure is based on OLS estimates for 8,176 hospital-year observationswith standard errors clustered at the HRR-level in parentheses. The controls include hospital market structure, insurance marketstructure, HCCI insurer share by county, hospitals use of technology, U.S. News & World Report Ranking, hospital beds, indicators forteaching hospitals, government-owned hospitals, and not for profit hospitals, the Medicare base payment rate, the share of hospitals’patients that are funded by Medicare, and the share funded by Medicaid. The regressions also include HRR fixed effects and yearfixed effects.

5.1%*2.0%*

1.9%-10%* -1.0%*

5.1%*4.1%*

1.9%-9.9%* -1.0% -8.7% 0.3%

Quality is Weakly Related to Price

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Note: An asterisk indicates significance at the 5% level. This figure is based on OLS estimates for 8,176 hospital-year observationswith standard errors clustered at the HRR-level in parentheses. The controls include hospital market structure, insurance marketstructure, HCCI insurer share by county, hospitals use of technology, U.S. News & World Report Ranking, hospital beds, indicators forteaching hospitals, government-owned hospitals, and not for profit hospitals, the Medicare base payment rate, the share of hospitals’patients that are funded by Medicare, and the share funded by Medicaid. The regressions also include HRR fixed effects and yearfixed effects.

1%

3.7%*2.0%*

3.1%*

13.3%*

Policy Changes to Address Price

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Fundamental Tension:

• Bigger hospitals often have better quality; integration has virtues; in a push towards pay-for performance, size gives stability;

• Bigger Hospitals also clearly have market power, which allows them to raise prices and it stymies incentives for quality;

Policy Options

1. More vigorous antitrust enforcement (including vertical integration)

1. Regulating prices (particularly out-of-network billing and trauma charges)

2. Make patients more price sensitive (leveraged by price transparency where the devil is in the details)

Session 35 Lecture: Medicare Payment is Different than Commercial!

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Transcript of Session 35 Lecture: Medicare Payment is Different than Commercial!