Geographic Variation in Cost
Growth
Michael Chernew
Lindsay Sabik
Amitabh Chandra
Joe Newhouse
June, 2009
Background
Fundamental fiscal challenge is spending
growth
Determinants of spending growth may
differ
diff ffrom determinants
d t
i
t off spending
di level
l
l
Slowing spending growth
Spending
High
g spending,
p
g,
rapid growth
Low spending, rapid
growth
Low spending, slow
growth
th
Time
Research questions
What is the relationship between the level
and rate of growth in spending
What market traits are correlated with cost
growth
th
Data
HRR Medicare spending, 1995 – 2005
– Part A; Part B
– Age, Gender adjusted
Market traits (ARF, BRFSS, Interstudy,
AHA)
– Physician composition
– HMO penetration
– Body mass measures
– Hospital infrastructure
– Demographics
D
hi
Level vs Growth
Low cost markets are not systematically
slow cost growth markets
% Spending Growth (1995
-2005)
Bottom
50%
Spending
1995
Top 50%
Bottom 50%
Top 50%
# HRRs
41
112
% Medicare
population
11.4%
28.3%
# HRRs
112
41
% Medicare
population
43.0%
17.2%
Correlation between % growth and level is: -.60
Top 5 Spending HRRs (1996)
Rank (1996)
1
2
3
4
5
Median
HRR
Miami, FL
Bronx, NY
Manhattan,
Los Angeles,
McAllen, TX
Annual
growth
2.9%
1.7%
2.2%
1.1%
2.8%
2.4%
Rank (1996 2005)
106
218
166
260
110
Top 5 Growth HRRs
Rank
(growth ‘96 –’05)
HRR
1
Lafayette, IN
2
Lincoln, NE
3
Mason City, IA
4
Sioux City, IA
5
y
g, VA
Lynchburg,
Annual
growth
6.3%
5.8%
5.6%
5.5%
5.2%
Rank (1996)
305
301
299
303
306
Model
(1) Spendingt = Xtt + et
(2) 
Spending
Spending =  Xt+1
t 1 +  Xt + et
 Coefficient on baseline X measures the
impact of a covariate growth, holding the
value of that covariate constant
Factors related to growth
Regress % change in HRR spending on
market
k t traits
t it
– Level and change in covariates are included
– Baseline spending is included
OLS weighted
g
by
y HRR population
Drop HRRs with missing covariates
Findings
Spending growth not related to:
– physician workforce composition
– BMI distribution
Spending growth slower in HRRs with:
– greater managed care penetration
– fewer smokers
– lower income
Change in Medicare Spending
vs. Percentage PCPs
C
Conclusions
Savings in the level are still important,
maybe VERY important, but…
Determinants of growth likely differ from
determinants of level
Strategies to control spending growth must
be either:
– Continual one time savings
g
– Fundamental environmental change
END
Selected Results
Variable
Primary Care Physicians per 10k
Effect of 10%
increase on
spending growth
0.05
Patient Care Specialists
p
p
per 10k
-0.025
HMO penetration
-0.026 **
Percentage overweight (BMI 25-29.9)
Percentage obese (BMI 30+)
0.375
-0.028
0 028
Percentage adults who are current
smokers
0.208 ***
M
Mean
I
Income
0 227 ***
0.227
% with a High School Education, 2000
Median Age, 2000
-0.388 ***
0.203 *