Countdown to MMI 2012: Geographic cost differences

Maryland recently announced the launch of a “Health Enterprise Zones” program to address regional disparities in healthcare delivery and costs. From the Baltimore Sun:

The proposed program would work something like economic enterprise zones, where businesses receive subsidies to create jobs and activity in certain areas. The health zones program would be a pilot, available in two or three geographic areas.

New and existing primary-care practitioners could receive loan assistance repayment; income, property or hiring tax credits; and assistance in installing health information and other technology. Subsidies would be capped, likely in the tens of thousands of dollars. Local health departments might get involved in recruiting participants.

Geographic differences in healthcare costs have been much discussed in recent years. As the 2011 Milliman Medical Index (MMI) describes the issue:

It’s frequently stated that healthcare is local. While the same cost drivers affect trends in each locale, the magnitude of price pressures and utilization is different in each city and changes from year to year. To illustrate these differences, the MMI tracks costs for 14 different cities across the United States. MMI costs in the most expensive of these cities (Miami) are more than a third higher than in the least expensive (Phoenix).

The MMI attempts to isolate geographic cost differences from other factors:

For comparison purposes, the MMI equalizes for differences such as plan design, demographics, and actual needs according to health status. What’s left in the illustrated differentials by city is a reflection of differences in how care is delivered as well as the amount that providers and payors negotiate as payment for those services.

Perhaps the best-known study of the topic is the Dartmouth Atlas, which has analyzed Medicare data for geographic cost differences for more than 20 years. Following the Dartmouth methodology, Milliman performed a pioneering study in 2010 to examine geographic cost differences in private claims data.

Geographic cost differentials are a complex issue and a target of healthcare reform efforts. A post last year on this blog discussed this interplay. The 2011 MMI, for its part, points out that, unless a geographic adjustment is applied, typical annual family healthcare costs in the most expensive cities will exceed the threshold for the “Cadillac tax” on high-value healthcare plans required by the Patient Protection and Affordable Care Act (PPACA).

Look for an updated analysis of geographic healthcare cost differentials in the new Milliman Medical Index due to be released in May.

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