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Health Plans: Data Proves that Meddling Works

By Jeff Elliott, for HealthLeaders Media  
   January 05, 2011

Health insurers these days will latch on to any bit of good press. That's why they were giddy about a recent study published in Health Affairs that indicated private insurance plans control healthcare costs better than Medicare.

The caveat: data to support this was generated from a study of just two Texas cities. In an effort to uncover the wide disparity in healthcare spending between McAllen and El Paso—first reported in a 2009 New Yorker article claiming that Medicare spending was drastically higher in McAllen—University of Texas researchers Luisa Franzini, Osama Mikhail, and Jonathan Skinner found that a private insurer was able to suppress costs in McAllen better than Medicare.

"Although spending per Medicare member per year was 86 percent higher in McAllen than in El Paso, total spending per member per year in McAllen was 7 percent lower than in El Paso for the population insured by Blue Cross Blue Shield of Texas," the study concluded.

According to Franzini, aggregate expenditures per capita for BCBS were roughly the same for McAllen and El Paso, given the Medicare differential. "And even though the inpatient utilization was much higher in McAllen than El Paso for the 50-65 age group, it was partially offset by much lower outpatient expenditures, which in turn brought the total expenditure gap between McAllen and El Paso down to a 23 percent differential," she said.

So what does this mean? Healthcare providers respond quite differently to incentives in Medicare compared to those in private insurer programs, study authors concluded. "Blue Cross and Blue Shield of Texas has developed several mechanisms to encourage cost-effective care by providers."

Among the tactics used by BCBS that might not be employed by Medicare, according to Franzini, are preauthorizations, provider utilization monitoring, case management efforts and stepped up prevention and wellness programs and incentives. In other words, meddling in provider (and patient) decision-making is effective … at least in some cases.

Chalk one up for health plans and their contentious rules which require physicians to clear procedures and medications before they are delivered.

But before insurers hang their hats on this report, they should realize that by the authors' own admission, the study is so localized, that it renders nearly futile the claim that private health plans do in fact control spending better than Medicare across the board. "McAllen is an extreme outlier in terms of Medicare per capita spending and is not typical," according to Franzini.

But she does admit it's a very intriguing development that is being explored on a wider scale. "This issue of variation in per capita expenditures in privately insured patients relative to Medicare variation deserves further study to see what lessons might be learned."


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