4 Key Insights on Addressing Cost Variation for Specialty Services

Industry experts from ArborMetrix and the University of Michigan discuss lessons in reducing specialty care cost variation.

It makes sense that episode payments vary among hospitals due to factors such as geography or differing patient populations. However, a 2011 Health Affairs study found Medicare episode payments for certain inpatient procedures varied by 49 to 130 percent across hospitals even when accounting for those characteristics.

moneyThe researchers examined complete Medicare claims data for a sample of patients that underwent certain procedures from 2005 to 2007. After adjusting for the hospital's location and the patient's illness severity, per-episode reimbursements still varied by as much as $2,549 for a colectomy and $7,759 for back surgery between the lowest-cost and highest-cost hospitals.

Recent analyses of commercial claims have also shown similar wide variations in the costs of specialty care episodes. Data from a Medicare Pioneer accountable care organization show wide variations in the costs as do results from a collaborative program run by Blue Cross Blue Shield of Michigan.

Brett Furst, CEO of healthcare analytics and software firm ArborMetrix, says specialty care spending is one of the main drivers of ballooning healthcare costs. "Specialty care and acute care still account for the majority of [healthcare] spending in the U.S.," he said.

In a Feb. 13 webinar titled "Can You Afford to be Accountable for Specialty Care? A New Approach for Identifying Variation & Risk in Specialty Care Episodes," Mr. Furst and ArborMetrix Chief Scientific Officer John Birkmeyer, MD, discussed how healthcare providers can pinpoint and address the reasons for variation in specialty care episode payments. David Miller, MD — one of the Health Affairs study authors and division chief and  associate professor of urology at the University of Michigan in Ann Arbor — also spoke about variation in specialty care reimbursement. Here are four key insights from the webinar.

1. Variation is condition- and specialty-specific. In addition to the significant payment differences across hospitals, Dr. Miller and the other Health Affairs study co-authors found hospitals that were among the most expensive for one procedure were often fairly inexpensive for other services. This implies that how efficient a hospital is in performing one procedure isn't correlated with its efficiency in other areas, showing a need for specialty-specific improvement strategies.

"There's probably a need for drilling down, digging down, looking at specialty-specific services," Dr. Miller said. "The solution or the insight may be very different depending on the service line." 

2. Higher-cost hospitals are not necessarily expensive for the same reasons. The reasons behind episode payment variation can be significantly different on an individual hospital level, even for the same condition, according to Dr. Miller.

"High-cost hospitals often get there in different ways, and understanding that is really important in figuring out how to improve," he said.

He has seen evidence of this phenomenon in his work with the Michigan Value Collaborative, an effort funded by Blue Cross Blue Shield of Michigan and coordinated out of the University of Michigan. The MVC aims to help the state's hospitals achieve the best possible patient outcomes at low costs.

In the case of coronary artery bypass graft surgery, he showed a breakdown of the cost distribution for two of the highest-cost hospitals in Michigan (which were not named). The first hospital had fairly low CABG costs for professional services and post-acute care. However, its facility costs for the procedure were about $9,000 greater than the average per episode for hospitals in the state. Meanwhile, the second hospital was high-cost for CABG because of post-acute care payments that were approximately $4,000 more than the average.

Dr. Birkmeyer of ArborMetrix said he also observed different drivers behind high-costs at hospitals involved in a large, multispecialty Medicare Pioneer ACO. Two hospitals in the ACO identified as high-cost for percutaneous coronary intervention had above-average expenses for different reasons. One showed lower-than-average use of outpatient facilities for elective PCIs, while the other had its costs driven up by expensive complications that resulted in open cardiac surgery.

"Information about exactly how and why they got to be higher-cost than their peers is essential," Dr. Birkmeyer said. "Our approach to providing this information is to make sure those service line leaders have both the tools to drill down and have ability to understand to what extent their payments are higher." 

3. Quality is a key driver of episode payment cost containment. In terms of episode payments for specialty care, Dr. Miller said it may be possible to find a "sweet spot" where hospitals not only lower costs but also improve quality of care.

He cited a bariatric surgery collaborative improvement program in Michigan in which, during the course of three years, overall complication rates fell from 8.7 to 6.6 percent and mortality rates decreased from 0.21 to 0.02 percent. As a result of the program, 30-day episode payments also went down by almost 5 percent.

"What we've seen in the state of Michigan is…significant reductions in costs for this surgery along with safer and higher quality outcomes," Dr. Miller said. "Getting to higher quality also reduces costs." 

4. Physicians are central to translating measurement into improvement. Getting physicians on board early is essential to any effort to address variation in specialty care payments, said Dr. Birkmeyer of ArborMetrix.

Healthcare organizations seeking to get physicians behind the variation identification and reduction effort need to make sure their measures have scientific credibility so physicians will accept them, he said. Additionally, it's important to be transparent regarding how the measurement process works.

"Don't overreach," he said. "Be careful not to make inferences on which costs are preventable on a case-by-case basis."

Download the webinar presentation here.

Note: View archived webinars by clicking here

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