Evaluating the Efficiency of California Providers in Caring for Patients with Chronic Illnesses

John Wennberg
Elliott Fisher
Laurence Baker, Health Economist and Chair, Dept. of Health Research and Policy, Stanford University School of Medicine


This is archived content; for historical reference only.

Amid debates over the long-term solvency of Medicare, hospital bed capacity, and the rising cost of health care, this study, published in 2005, found that care for patients with similar illnesses cost Medicare significantly more at some California hospitals but resulted in no better quality of care or patient satisfaction.

The study by researchers at Dartmouth Medical School looked at the performance of individual California hospitals in managing chronically ill patients over a five-year period that ended in 2003. The findings, along with a comparison of data from hospitals in five regions in California — Los Angeles, Orange County, Sacramento, San Diego, and San Francisco — were published in the online edition of the journal Health Affairs.

Greater Spending Does Not Equal Higher Satisfaction

The study found significant variation in Medicare spending for chronically ill patients in California. For example (as shown in Figure 1), hospitals in Los Angeles received an average of 60% more for inpatient reimbursement for Medicare patients during the last two years of life than Sacramento-area hospitals. In fact, Medicare paid some hospitals in the state as much as four times more than other hospitals to care for patients with similar conditions.

Yet the additional care provided did not improve medical outcomes or patient satisfaction. Rather, as the volume of care increased, the quality of care and patient satisfaction actually declined.

The comparisons suggest that savings may be achieved by improving efficiency, and with no impact on quality. For example, Medicare could have saved $1.7 billion in the Los Angeles area alone if medical practice patterns there, the most expensive region, resembled those of Sacramento, the least expensive.

Direct Comparisons of Individual Hospitals

For the first time, the Dartmouth research allowed for direct comparisons of the efficiency of individual hospitals in treating patients with chronic illness based on the actual Medicare claims from a hospital and its associated physicians. As a result, it was possible to compare and rate regions, as well as individual hospitals, on the efficiency with which they used health care resources.

The study found that the higher use in California reflected a delivery system in which services were driven not by patient need, but by the supply of medical resources. In regions that had more hospitals, more ICU beds, more physicians, and more specialists, patients received significantly more services at greater cost, but with no improvement in outcomes.

Possible Solutions

According to the authors, any solution to the problem of overuse of services will require doctors, hospitals, employers, insurers, and others to better understand resource use in hospital markets. The report says that, when selecting providers for their networks, insurers and other payers should not be “penny wise and pound foolish” by considering only the unit cost of services. Payers should instead consider the total cost of caring for patients as a measure of efficiency and the prudent use of resources. Hospital management must make key decisions that determine capacity in their communities, as well as examine the efficiency of physicians with admitting privileges in their hospitals.

The California study was underwritten by the California Health Care Foundation and the Robert Wood Johnson Foundation, a longtime funder of the Dartmouth Atlas project. Data on all hospitals in the United States, which reflect similar spending and outcome trends, were released in early 2006.

The Health Affairs article, “Evaluating the Efficiency of California Providers in Caring for Patients with Chronic Illnesses,” is available through the link below. Also available are five opinion pieces on the research from Senator Max Baucus, Thomas Priselac, Uwe Reinhardt, Leonard Schaeffer and Dana McMurtry, and Barry Straube.