Variation Redux: The IOM Weighs In

Today’s Managing Health Care Costs Indicator is 45%

Click to enlarge image 
The Dartmouth Atlas, as highlighted by the 2009 Atul Gawande article reviewing the high utilization of high margin services in McAllen, Texas, has focused attention on the high level of variation in Medicare spending in different hospital referral regions across the country
The Affordable Care Act offers higher Medicare fee updates to physicians practicing in areas of low utilization, and diminished fee increases for those practicing in high utilization areas.

A number of academics have long been suspicious that the Dartmouth methodology overstated differences, and have complained that the Dartmouth researchers

  •     Used only Medicare data
  •     Did not do substantial risk adjustment
  •     Did not adjust for Medicare geographic payment differentials 
The Institute of Medicine just released a long-awaited study of variation of Medicare costs with this additional adjustment completed. Costs of 45 percent of all hospital referral regions changed by at least 10%.

Honolulu remains the lowest cost HRR, and Miami remains the highest.  But the cost in Miami drops from 200% of average to 135% of average.  As you see in the graphic above, the Bronx (NY) drops from 55% higher than average cost to 10% lower than average cost after reasonable adjustment for payment differences, illness and demographics.

This highlights the difficulties of using apparent variation to lower overall health care costs.

Addendum: Thanks to reader MarilynMann - I have fixed the last link.