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Health Affairs Study: Volume Shapes Medicaid Spending

By Melissa Attias, CQ Staff

July 7, 2011 -- At a time when many governors are looking to Medicaid as a place to cut costs, a study released Thursday found that among some Medicaid patients, interstate variations in spending are shaped more by the volume of care provided to patients than the prices paid for services.

The analysis, appearing in the July issue of Health Affairs, was based on Medicaid spending data from 2001 to 2005, but it was limited to Medicaid-only beneficiaries who were disabled and receiving cash assistance since a uniform national eligibility standard exists for those recipients.

The study also found that some large states are spending twice as much per beneficiary as similarly-sized states.

In the 10 highest-spending states, per capita spending was $1,650 above the national average, with $1,186 or 72 percent due to the volume of services delivered. The 10 lowest-spending states, in contrast, spent $1,161 below the national average, with $672 or 58 percent attributed to volume.

The study also found that increased price and volume resulted in the most expensive care in the mid-Atlantic compared to other regions, while reduced price and volume produced the least expensive care in the south central region.

Lead author Todd P. Gilmer, a University of California, San Diego professor, said states can use some of the findings as benchmarks for their programs as they see how they compare to other states. They can also look to more successful states “to see what kind of innovative practices they’re pursuing,” he said, and use the information to suggest some areas for change.

Gilmer pointed to the example of Washington state, where acute care spending was 18 percent below the national average, inpatient days per beneficiary were 35 percent below average, and outpatient visits and prescription fills were each 15 percent above average.

The study also found that higher numbers of primary care physicians were associated with lower hospital admission rates for diabetes, chronic obstructive pulmonary disease and adult asthma.

And it found that when Medicaid patients saw their doctors more and doctors were paid higher rates for those visits, it likely led to fewer hospitalizations. That suggests, the researchers said, that increased primary care access may result in lower admissions rates.

As a result, the authors said that they expect that the provisions of the 2010 health care overhaul (PL 111-148, PL 111-152) aimed at increasing access to primary care, such as expanding the size of the primary care workforce and temporarily increasing physician payment rates under Medicaid, may reduce inpatient admissions. They also noted that the law’s planned 2014 expansion of the Medicaid program makes the findings particularly relevant, as states and the federal government face fiscal, administrative and system challenges regarding its implementation in the coming years.

“Our hope is that the results presented here will provide Medicaid programs with the tools to help them continually improve their ability to purchase cost-effective, high-quality care,” they wrote.

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