Regional Variation: The Democratic Health Reform Dilemma

According to many in the Obama administration, given equal outcomes, having high spending regions lower health costs to the same level as costs in low spending regions is the most effective way to achieve “savings” for the entire health system.

So goes a central Democrat talking point. It is the based of an off-repeated platitude that one-third of U.S. health spending is “waste.” In other words, $830 billion of the $2.5 billion we spend on health care could be saved because it stems from profligate overspending in certain regions of the country.

Dartmouth Institute wonks, such as John Wennberg and Elliot Fisher, using Medicare data to highlight regional differences, have fostered this rhetoric.

But certain political realities are causing the rhetorical chicken to come home to roost.

• Most of the high spending occurs in big cities dominated by the Democrats.

• Many of patients causing high spending are the urban poor, an important Democratic constituency, who tend to have multiple chronic diseases.

• The big spending often occurs in academic medical centers, which tend to be concentrated in major metropolitan areas, like Chicago, New York, and Los Angeles.

• These centers are often the biggest economic players in town and the largest employers.

Don’t take my word for it. The New York Times and the New England Journal of Medicine say so too. As Will Rogers remarked, “All I know is what I read in the papers.” In this case the papers include the most widely read medical journal on the planet.

• The Times observes,

“As Congress struggles to rein in health costs as part of its sweeping reform efforts, hospitals in New York City and other urban areas that provide some of the most expensive care are among the primary targets…Through greater efficiency, Medicare spending could be cut by 15 to 30 percent, cite researchers at Dartmouth Medical School, who contend that Medicare could save $1.42 trillion by 2023, and eliminate a looming deficit.”

The Times goes on to observe that at NYU Medicare spending was $105,000 for the last two years of life, that patients spent an average of 31 days in the hospitals, and were visited by 77 doctors. Meanwhile in Davenport, Iowa, during the last 2 years of life, Medicare spent $40,000 per patient, patients spent 14 days in the hospital, and each patient saw 20 doctors.

Source: “Hospitals Cite Worry on Fees in Health Bill,” NYT, November 3, 2009

• To explain these two to four fold differences, three Boston Medical Center and Boston University School of Medicine physicians, say in “Payment Reform for Safety-Net Institutions – Improving Quality and Outcomes, “ November 5, 2009,

“Low –income patients are more likely than high-income patients to have multiple co-existing conditions, and hospitals serving a high proportion of low-income high-patients may therefore have to do more than other hospitals to achieve the same outcomes. We believe that given the same level of quality, safety-net hospitals should therefore be reimbursed more per patient under any pay-for-quality scheme that is implemented.”

“Even when they have health insurance, people with low income often have more difficulty gaining access to the care they need. They may be faced with such challenges as disconnected telephones, transportation difficulties, multiple or inflexible jobs, unaffordable copayments for medicine and often cultural and language barriers as well.”

In short, for these and related reasons, it is impractical and unrealistic to expect high-spending regions, particularly in inner cities, to reduce their costs of doing business and providing services to the same level as those in low-spending regions, where patients are healthier and costs of doing business are lower. Socioeconomic and culture differences and sickness levels are often profound and cannot be reduced to leveling the payment field. People are sicker in high spending areas. Indded, The "hospital care intensity index" developed at Dartmouth is in the 98.6 percentile in Manhattan compared to less than 20 in the Pacific Northwest and upper Midwest and 40 to 60 in much of rural America.