“The Cost Conundrum: What a Texas town can teach us about healthcare,”

In 2009, an article in the New Yorker’s Annals of Medicine attracted a great deal of attention.  Titled “The Cost Conundrum: What a Texas town can teach us about healthcare,” the article called out McAllen Texas as one of the most expensive Medicare communities in the country; a community where “health costs have grown faster than any other market in the country.”

The reason?  While a disproportionate burden of illness – driven by heavy drinking, poor nutrition, and obesity – certainly contributed to the burden of cost, the primary reason was a gross over-utilization of health care services driven not by patient need or improvements in care but largely by provider greed.  “Medicine has become a pig trough here,” one local surgeon observed.

A recent update in a Commonwealth Fund Blog titled “McAllen, Texas: Tailored Solutions to High Spending are Needed” noted that the spotlight focused on McAllen had stopped some of the abuses. But of more importance to employers is this conclusion:  “Medicare should not be used as a proxy for the entire health care system.”  As the authors put it:

For the predominantly non-elderly privately insured population, these [expensive post-acute] services are less of an issue since younger people are less likely to need them. Instead, spending is driven more by negotiated prices for inpatient hospital services, because, unlike Medicare, private insurance plans cannot set standardized prices across geographic areas.

This observation aligns exactly with what CBGH is finding as we analyze employer costs.  A huge problem for employers is the 200% to 1100% variation in inpatient and outpatient hospital facility fees.  Our prescription for controlling costs among employed populations?  We recommend three supply-side strategies supported by a significant value-based benefit designed to encourage appropriate utilization of care:

1.    An evidence-based primary care delivery model – one that integrates mental health.

2.    Pricing transparency for episodic care to encourage competition and consumerism.  (Exclusive networks are antithetical to this approach.)
3.    Creating effective large case management for catastrophic care.

Do you agree with this approach? Let us know what you think employers can doe to control health costs. As always, we welcome your comments.