I want to call your attention to a very thoughtful blog published by the semi-retired health care journalist, Merrill Goozner: the GoozNews Substack. Goozner’s most recent post, “It’s mostly overutilization, stupid” provides a delightful trip down memory lane, summarizing the decades-old debate about the causes of geographic variation in health care cost.
Goozner started by reminiscing about work done at Dartmouth starting in the 1970s by John Wennberg, Elliott Fisher and others analyzing “small-area variations” in the utilization of services for Medicare patients. That work, beautifully reported in the Dartmouth Atlas of Health Care, pointed the finger at excessive utilization, including what was called “supply-sensitive care” where doctors and hospitals keep themselves busy.
Goozner also reminisced about the contrary view that “it’s the prices, stupid” espoused in 2003 by Gerard Anderson at Hopkins and health economics legend Uwe Reinhardt at Princeton based on their analysis of country-level variations using OECD data. This conclusion was reiterated in 2015 by Zack Cooper of Yale, Martin Gaynor of Carnegie Mellon and in a series of Rand Corporation studies. Goozner noted that this price-oriented perspective informed the Biden administration, which directed its DOJ and FTC to scrutinize mergers thought to harm competition and enable price increases, while the administration repurposed CMMI away from what they considered to be disappointing “value-based care” efficiency incentives to instead emphasize health equity.
Then Goozer summarized an important new paper published in JAMA this month by Joseph Dieleman and colleagues from the University of Washington Institute for Health Metrics and Evaluation, exploring the Drivers of Variation in Health Care Spending Across US Counties. In the mother of all claims data analyses, the U of W team assembled 2019 claims data from diverse public and private sources to conduct the first analysis of county-level and payer-specific drivers of health care cost, controlling for disease prevalence, age and other factors. Their main regression analysis findings:
They provided subanalyses for six different types of services, four different payer categories, nine different disease categories, and ten different states, all showing that while the specific percentages differ, the overall conclusion that services utilization is the main driver of variation was consistent.
In the discussion, Dielemen implicitly recognized the longstanding utilization vs. price debate and offered an insightful explanation. Price increases were responsible for 50% of the growth in national health spending over time between 1996 and 2019, but as of 2019, prices explained only 24.1% of the variation in county-level expenditures. In other words, both are partially true. The utilization variation is large and important and has been there all along. But half of the overall growth over time (in both low and high utilizing counties) is due to price inflation that exceeds the general inflation rate — possibly due to reduced competition from provider consolidation.
Why do we care about geographic variation?
As I explained in a comment in Goozner’s blog: all along, the main purpose of studying cost variation by geographical areas has been to use lower-cost areas as the existence proof that achieving lower cost is possible. The idea was to find out what works in those areas, and try to do the same elsewhere — or the reverse: finding out what does not work in the high cost areas and trying to stop doing those things.
This is a specific application of what we used to call “benchmarking” — where you find performance outliers and then learn from them to identify improvement opportunities that can be shared and implemented elsewhere. Over the years, the original meaning of benchmarking has been largely lost. People have been focusing on the performance comparisons, but forgetting the part about learning and improving. Too many people think benchmarking is about rewarding excellence with praise and shaming the “bad apples” — a problem I’ve described in 2011 and again in 2021.
Don’t get distracted from innovation.
But, it is always useful to step back and see the bigger picture. What we really care about is improving our health care system. That includes improving both health and economic outcomes — in other words, improving “value.” When you focus on cost variation, there are two problems. First, you are focusing only on cost, not on value. Second you are implicitly limiting the scope of your search for cost saving opportunities to the structures and processes that already exist in some geographic areas. Cost variation studies do not identify opportunities to reduce cost (or, more importantly, to improve value) through innovation and optimization.
Innovation can take two main forms. First, we can improve clinical decision-making processes — the processes used to determine what needs to go on each patient’s plan of care. This type of innovation involves the development of superior practice guidelines and protocols. This development requires literature review, modeling, cost-effectiveness analysis, and consensus-building to design guidelines and protocols expected to deliver more value. Then, we can confirm that those expected outcomes were true through observational outcomes studies and clinical trials. The second type of innovation seeks to improve care delivery processes – the processes used to efficiently execute the items on the plan of care, in conformance with quality standards and without errors, waste or delays. The improvement of care delivery processes can be accomplished using methods such as CQI, TQM, 6 sigma, etc.
As a traveler in the health care improvement field, I lament the decline in interest in the admittedly tedious work of improvement, optimization and innovation. And I also lament the distraction from that tedious work caused by the continued focus on debating the relative strength of prices or utilization in explaining existing geographic variation in cost of care.
Can we learn from the work of Dielemen et al? Yes, absolutely. But, the real opportunity is not to emulate low cost counties. It is to innovate to create care processes that offer greater health care value than is currently achieved in any county.
