Health Care Costs Sting Ottawa More Than Kent

May 28, 2002
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Ottawa County employers who participate in a regional health consortium pay 28 percent more to provide their employees health care than their counterparts in neighboring Kent County, even though local physicians and care providers charge less.

An initial analysis of data from claims paid in 2000 leads REAL Health to suspect that Ottawa County health care providers may tend to order more diagnostic tests, or require more office visits or more hospitalization than their Kent County colleagues. Maternity cases for REAL Health members in Ottawa County, for instance, have an admission rate of 22.1 percent, which compares with 16.3 percent in Kent County.

That kind of higher utilization would more than offset the lower prices charged for specific procedures in Kent County, resulting in a higher overall cost to employers in Ottawa County.

The job now for REAL Health, an employer-owned coalition formed two years ago to purchase health care services on behalf of its members, is to further analyze its data to see if those suspicions are accurate, and then work with providers to address the cost discrepancy between the two counties, REAL Health President Paul Brand said

“What we see is all about utilization,” Brand said. “We know people who live in Ottawa County use more health care in our plan.”

Brand presented the data last Thursday during REAL Health’s annual membership meeting in Grand Rapids.

While he can hypothesize as to the reasons behind the cost discrepancy from one county to the other, Brand said REAL Health needs to conduct a far greater analysis of its findings before it can form any firm conclusion. Further analysis, he said, won’t come easily, given the depth and volume of data that REAL Health collected during the past year.

“The biggest challenge we have about this data is how comprehensive it is,” Brand said. “It’s a very challenging issue.”

Although the data could tend to put the pressure on providers, representatives from provider groups attending REAL Health’s annual meeting voiced support for the analysis as a way to get a handle on escalating health care costs and improve quality and delivery of care.

“It has been a long time in coming,” said David Duffey, medical director of Principal Health, a coalition consisting of Holland Community Hospital and most of the physicians in the Holland area.

“The tools have been lagging for a long time to get down to that kind of level of detail,” Duffey said.

REAL Health based its initial analysis on health claims filed during 2000 on behalf more than 19,000 members in Ottawa and Kent counties, which includes employees at eight participating employers and their families. To ensure the data wasn’t skewed by statistical anomalies, REAL Health excluded high-cost claims in excess of $30,000 and took into account the varying demographics of Ottawa and Kent counties.

The bottom-line finding was that employers of members who live in and receive their care in Ottawa County paid an average of $1,311 for health care services. That compares to $1,021 in Kent County, a discrepancy of 28.4 percent.

The overall cost discrepancy for just the employees, and not their families, was even larger: $3,297 to $2,120, or 55.5 percent.

Identifying what drives those kinds of discrepancies is the premise behind REAL Health, which defines itself as a “value purchasing organization” that’s focused on value. By analyzing the cost of care and comparing it with quality and medical outcomes, REAL Health seeks to identify those care providers who offer the best value, Brand said.

The goal is to produce accountability among the providers who provide a high level of value and those who don’t and to base reimbursement rates on performance, he said.

“We can move away from paying them all the same because the reality is they don’t perform all the same,” Brand said.

REAL Health has more than 33,000 members in 15 counties in West Michigan, with a provider network consisting of 22 hospitals and 1,900 care providers.

The initial data collected reinforces REAL Health assertion that purchasers of health care should base their decision on far more than just price, Brand said. Otherwise, he said, they should just “smile and write the check.”

“You need to know what you’re buying,” Brand said. “Purchasing health in West Michigan is no longer about discounts. It’s cheaper to buy high-priced care. It surprises us, but that’s the reality.” 

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