Gaining Cost Savings from Decreasing Variation: More Difficult Than It Looks!

 The New York Times has an excellent front page story today examining the work of researchers at Dartmouth who have shown huge variations of Medicare costs across the country.  The Dartmouth data has often shown that the relationship between cost and quality appears inverse – and many have inferred that we can have higher quality and lower cost at the same time.

The article reviews some of the critiques of the Dartmouth Atlas research, including the fact that the Dartmouth researchers focused on cost only, with no assessment of quality.

I’ve pointed out that the cost savings estimates are overly optimistic before. Here’s a link to a post from January 2009 on this topic. This was around the time that Professor Richard Cooper of Wharton published some provocative data showing that Medicare payment rates appeared inversely proportional to payments by private health plans.  Therefore, the areas like Louisiana that had VERY high Medicare payments did not have more specialists (even pre-Katrina). Rather, they had less cost-shift from Medicare to private payers.

The Dartmouth researchers have done a great service – and utilization differences are real and important across the country.  Their approach isn’t perfect – and too many people have extrapolated too optimistically about how easy it will be to save money based on decreasing utilization.  We have to be realistic.   People who live around the corner from 4 MRI machines will always have more MRIs than people who have to drive four hours in each direction to get to an MRI machine!

Another important point.   Compared to other countries, our main issue is cost per unit, not utilization.  Let’s be sure to decrease utilization – and in doing so we’ll probably improve quality, and at least not make it worse.  But first and foremost we have to address the problem of very high cost per unit for each service we deliver in the US.