New Reports Show Cost of Medical Care Still Varies Widely Across California

Regional practices patterns differ

The amount of medical care for chronically ill patients in Los Angeles is dramatically higher than in other areas of the state. While this disparity has been seen previously in care for fee-for-service (FFS) Medicare patients, new research shows that regional cost differences are also present with other coverage types, including private FFS, HMO, or PPO coverage and Medicare HMO plans, but not to the same degree.

Integration of care has traditionally led to less variation in services provided, but even a highly integrated, statewide health care company like Kaiser Permanente experienced a north-south divide, although the care and cost gaps were smaller.

The findings are included in a study led by Laurence C. Baker, Ph.D., professor of Health Research and Policy and chief of Health Services Research at the Stanford University School of Medicine, and funded by the California HealthCare Foundation (CHCF). The complete report, Same Disease, Different Care: How Patient Health Coverage Drives Treatment Patterns in California, is available online through the Related CHCF Page link below.

Baker compared medical services for Medicare and private HMO patients in the Kaiser system in northern and southern California, which are among the most tightly managed health care settings in the country. He found similar chronically ill Kaiser patients in southern California received slightly more treatment in the last two years of life than in the north.

“While not definitive, one interpretation of these results is that care integration could play a role in variations in hospital-use patterns,” Baker explains in the study.

Maribeth Shannon, director of the California HealthCare Foundation’s Market and Policy Monitor Program, said the results, if acted upon, could ultimately help save precious health care dollars. “It is striking that the patterns of care are so clearly different across the state,” Shannon said. “With the cost of care rising so quickly, shining a light on the potential to reduce unnecessary care and overtreatment is invaluable.”

Today’s study coincides with the release of the latest update to the Dartmouth Atlas of Health Care, a continuing analysis by Dartmouth researchers on national variations in the delivery and cost of treatment for those with chronic diseases.

The Dartmouth report this year focused, in part, on variation in care in the Los Angeles area and found that chronically ill Medicare patients — some within just a few blocks of each other — experience very different courses of treatment in the two years prior to their deaths, depending upon the resources available and the practice style that has developed at each hospital.

Chronically ill FFS Medicare patients in parts of Los Angeles see ten or more physicians in the last six months of life — significantly more than in either Sacramento or San Francisco. This research also shows that areas with high levels of hospital bed availability often have high rates of hospital use. Having more available beds may lead to the development of practice patterns and norms of medical care that fill beds, Baker notes.

“We’ve known for some time that in health care, geography is destiny. How much care you receive often depends on where you live. What’s striking is that these differences exist not just between states, but within cities, and even within neighborhoods,” said Dartmouth Atlas lead author John E. Wennberg, M.D., M.P.H. “This can be seen vividly in Los Angeles where there is remarkable variation in Medicare spending among hospitals, from $131,000 per patient at the highest-cost hospital to $61,000 at the least-expensive hospital. This represents a lot of wasted effort and unnecessary care.”

Regional Variations in Care Intensity

The Baker report explores variation in resources used to treat chronically ill patients seen in Medicare HMOs and those covered by private insurers. Analyzing patient data from the Los Angeles, Orange County, Sacramento, San Diego, and San Francisco regions, Baker compared the number of hospital days used in the last two years of life.

Four patient types were compared: Medicare FFS members, Medicare HMO members, privately insured members of PPO or FFS plans between the ages of 55 and 64 at the time of death, and privately insured HMO members in the same age range. For each patient group studied, variations in treatment patterns were found across hospital referral regions.

As established in previous studies of Medicare FFS patients, for privately insured patients in PPOs or FFS plans, Los Angeles patients were found to have the highest levels of hospital use and Sacramento patients the lowest. However the ratio of the highest to lowest use was somewhat smaller, at about 1.3, for privately insured or FFS plans versus 1.6 for Medicare FFS (26.6.days over 16.5 days).

For patients covered by Medicare HMOs or private HMOs, much less regional variation was found and the patterns were different. In comparing regional means, the ratio of highest to lowest hospital use was smaller — between 1.1 and 1.2.

Kaiser Permanente California Hospitals

In addition to his examination of regional variation between Kaiser’s systems in northern and southern California, Baker conducted a hospital-level analysis for the facilities within the system.

For chronically ill Medicare patients seen in their last two years of life at Kaiser Permanente’s hospitals in northern and southern California, Baker found that the number of hospital days across Kaiser’s 28 California hospitals varies less than among non-Kaiser facilities. In this hospital-specific analysis, Kaiser facilities ranged from a use rate of 12 days in the last two years of life to the highest at 18 days, for a ratio of about 1.5. Among non-Kaiser hospitals, the ratio was much greater at 3.4.

“It appears that when providers have a financial incentive to be cost-conscious through capitated or limited reimbursement, they may be,” said Shannon, of the California HealthCare Foundation.

Dartmouth Atlas of Health Care 2008 Update

The studies are being released with the latest update to the Dartmouth Atlas of Health Care, a continuing analysis by researchers at the Dartmouth Institute for Health Policy and Clinical Practice on variation in care for those with chronic disease. The California HealthCare Foundation is part of a funding collaborative that supports the research. As with the 2005 edition of the Atlas, investigator Wennberg and co-authors Elliott S. Fisher, M.D., M.P.H., David C. Goodman, and Jonathan S. Skinner examined data on care delivered to chronically ill Medicare beneficiaries in the last two years of life. The patients all suffered from one or more of nine chronic diseases and died between 2001 and 2005.

Dartmouth Atlas authors assert that chronic illness is treated with considerable inefficiency in the United States. They cite wide variation in care given to the chronically ill in different parts of the country and the failure of more care to produce better outcomes. This year, focusing on Los Angeles, they found:

  • Los Angeles is a hospital referral region that epitomizes high-cost, resource-intensive, and high-intensity medical care.
  • Among the 306 Dartmouth Atlas hospital referral regions, the region ranked third in Medicare spending; second in intensive care bed use per 1,000 in the chronically ill Medicare population; and second in per-capita physician labor input during the last two years of life for patients dying during the five-year period studied.
  • Los Angeles patients were near the top in the national distribution in “high-tech” deaths: More than 30% of deaths were associated with intensive care — the third-highest in the nation. Los Angeles providers approached terminal care much more aggressively than providers in the three organized care systems against which they were benchmarked: Mayo Clinic, Cleveland Clinic, and Intermountain Health Care (IHC).
  • Hospice care use, measured as the percent of decedents enrolled in hospice during the last six months of life at Medicare’s expense, varied significantly among Los Angeles hospitals: from only 5% to 6% of decedents in the hospitals with the lowest frequency of use to 33% to 36% of decedents in the two hospitals with the greatest use. Hospice use in the benchmark IHC system was higher than every Los Angeles hospital.
  • On average, Medicare copayments during the last two years of life for patients hospitalized in Los Angeles were 2.04 times greater than for those hospitalized in the Mayo Clinic system benchmark ($2,360). The highest average copayment charge was $6,524, an amount 2.76 times greater than that paid by Mayo Clinic patients. The average for the Los Angeles hospital with the lowest copayment was $3,230, an amount that, while low by Los Angeles standards, was still almost 40% greater than the average amount paid by Mayo Clinic patients. The Atlas authors note that information about copayments may be useful in helping patients and their families choose among providers.
  • Some characteristics of the Los Angeles marketplace that seem to drive this high utilization: A fragmented hospital market with many small competing hospitals; and a high concentration of physicians, particularly specialists.

“Adopting the more efficient, less intensive practices of the best hospitals has the potential for significant cost savings in a health care system that is hemorrhaging dollars,” said Fisher, who directs the Center for Health Policy Research at the Dartmouth Institute. “More importantly, it would save lives. Mortality is actually higher in high-spending regions where patients receive unnecessary treatment. More care is not better, not for the health of our patients and not for the health of our system.”

About the Dartmouth Atlas Project

The Dartmouth Atlas Project began in 1993 as a study of health care markets in the United States, measuring variations in health care resources and their utilization both by geographic areas. More recently, the research agenda has expanded to reporting on the resources and utilization among patients at specific hospitals. The project uses very large claims databases from the Medicare program and other sources to define where Americans seek care, what kind of care they receive, and to determine whether increasing investments in health care resources and their use result in better health outcomes for Americans. Visit for more information.

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About the California Health Care Foundation

The California Health Care Foundation is dedicated to advancing meaningful, measurable improvements in the way the health care delivery system provides care to the people of California, particularly those with low incomes and those whose needs are not well served by the status quo. We work to ensure that people have access to the care they need, when they need it, at a price they can afford.