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Interim Report
of the Committee on
Geographic Variation
in Health Care Spending
and Promotion of
High-Value Care

PRELIMINARY COMMITTEE OBSERVATIONS

Committee on Geographic Variation in Health Care Spending and Promotion of High-Value Care

Board on Health Care Services

Joseph P. Newhouse, Alan M. Garber, Robin P. Graham,
Margaret A. McCoy, Michelle Mancher, and Ashna Kibria, Editors

INSTITUTE OF MEDICINE
OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

Washington, D.C.

www.nap.edu



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Committee on Geographic Variation in Health Care Spending and Promotion of High-Value Care Board on Health Care Services Joseph P. Newhouse, Alan M. Garber, Robin P. Graham, Margaret A. McCoy, Michelle Mancher, and Ashna Kibria, Editors

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THE NATIONAL ACADEMIES PRESS 500 Fifth Street, NW Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This study was supported by Contract No. HHSP23320042509XI between the National Academy of Sciences and the Department of Health & Human Services. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project. International Standard Book Number 13 978-0-309-28282-6 International Standard Book Number 10 0-309-28282-9 Additional copies of this report are available for sale from the National Academies Press, 500 Fifth Street, NW, Keck 360, Washington, DC 20001; (800) 624-6242 or (202) 334-3313; http://www.nap.edu. For more information about the Institute of Medicine, visit the IOM home page at: www.iom.edu. Copyright 2013 by the National Academy of Sciences. All rights reserved. Printed in the United States of America The serpent has been a symbol of long life, healing, and knowledge among almost all cultures and religions since the beginning of recorded history. The serpent adopted as a logotype by the Institute of Medicine is a relief carving from ancient Greece, now held by the Staatliche Museen in Berlin. Suggested citation: IOM (Institute of Medicine). 2013. Interim report of the Committee on Geographic Variation in Health Care Spending and Promotion of High-Value Care: Preliminary committee observations. Washington, DC: The National Academies Press.

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The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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COMMITTEE ON GEOGRAPHIC VARIATION IN HEALTH CARE SPENDING AND PROMOTION OF HIGH-VALUE CARE JOSEPH P. NEWHOUSE (Chair), John D. MacArthur Professor of Health Policy and Management, Department of Health Policy and Management, Harvard School of Public Health and Harvard Kennedy School, Boston, MA ALAN M. GARBER (Vice-Chair), Provost, Harvard University; Mallinckrodt Professor of Health Care Policy, Harvard Medical School, Boston, MA PETER BACH, Director of the Center for Health Policy and Outcomes, Department of Epidemiology & Biostatistics, Memorial Sloan-Kettering Cancer Center, New York, NY JOSEPH BAKER, President, Medicare Rights Center, New York, NY AMBER E. BARNATO, Associate Professor of Medicine, Clinical and Translational Science, and Health Policy and Management and Director of the Clinical Scientist Training Program and the Doris Duke Clinical Research Fellowship, University of Pittsburgh, PA ROBERT BELL, Statistics Research Department, AT&T Labs-Research, Florham Park, NJ KAREN DAVIS, Eugene and Mildred Lipitz Professor and Director, Roger C. Lipitz Center for Integrated Health Care, Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health, Washington, DC A. MARK FENDRICK, Professor, Departments of Internal Medicine and Health Management & Policy, University of Michigan; Director, University of Michigan Center for Value-Based Insurance Design, Ann Arbor PAUL B. GINSBURG, President, Center for Studying Health System Change, Washington, DC DOUGLAS HASTINGS, Chair of the Board of Directors, Epstein Becker & Green, P.C., Washington, DC BRENT C. JAMES, Chief Quality Officer and Executive Director, Institute for Health Care Delivery Research, Intermountain Health Care, Salt Lake City, UT KIMBERLY S. JOHNSON, Assistant Professor, Department of Medicine, Division of Geriatrics, Duke University, Durham, NC EMMETT B. KEELER, Senior Mathematician, RAND Corporation, Santa Monica, CA THOMAS H. LEE, Professor of Medicine, Harvard Medical School and Harvard School of Public Health; CEO, Partners Community HealthCare, Inc., Boston, MA MARK B. MCCLELLAN, Director, Engelberg Center for Health Care Reform; Leonard D. Schaeffer Chair in Health Policy Studies, Brookings Institution, Washington, DC SALLY C. MORTON, Professor and Chair, Department of Biostatistics, Graduate School of Public Health, University of Pittsburgh, PA ROBERT D. REISCHAUER, Distinguished Institute Fellow and President Emeritus, The Urban Institute, Washington, DC ALAN WEIL, Executive Director, National Academy for State Health Policy, Washington, DC GAIL R. WILENSKY, Senior Fellow, Project HOPE, Bethesda, MD Study Staff ROBIN P. GRAHAM, Study Director DIANNE WOLMAN, Senior Program Officer (through December 2010) MARGARET A. MCCOY, Program Officer MEG F. BARRY, Associate Program Officer (through December 2012) MICHELLE MANCHER, Associate Program Officer ASHNA KIBRIA, Research Associate (from July 2012) CASSANDRA CACACE, Research Associate (October 2011 through April 2012) REBECCA MARKSAMER, Research Associate (from February 2013) v

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NINA SURESH, Research Assistant (through August 2012) JILLIAN LAFFREY, Assistant, Board on Health Care Services KATERINA HORSKA, Presidential Management Fellow (December 2011 through May 2012) MARGARET L. SCHWARZE, IOM Anniversary Fellow SETH GLICKMAN, IOM Anniversary Fellow ROGER HERDMAN, Director, Board on Health Care Services Consultants GARY ALLEN, Truven Health Analytics ABBY ALPERT, RAND Corporation DAVID AUERBACH, RAND Corporation ANITA AU-YEUNG, Acumen LLC SARAH AXEEN, Precision Health Economics KATHERINE BAICKER, Harvard University SEO HYON BAIK, University of Pittsburgh JOHN BAILAR, University of Chicago (Emeritus) ERIC BARRETTE, The Lewin Group HANI BASHOUR, Acumen LLC JAY BHATTACHARYA, Acumen LLC AMITABH CHANDRA, Harvard Kennedy School of Government MICHAEL CHERNEW, Department of Health Care Policy, Harvard Medical School CAMILLE CHICKLIS, Acumen LLC KENNAN CRONEN, Acumen LLC BRYAN DOWD, University of Minnesota EMILY EHRLICH, Truven Health Analytics AMANDA FARR, Truven Health Analytics ELLIOTT S. FISHER, Dartmouth Institute for Health Policy and Clinical Practice CAROL FORHAN, Truven Health Analytics JESSELYN FRILEY, Acumen LLC PROJESH GHOSH, The Lewin Group TERESA GIBSON, Department of Health Care Policy, Harvard Medical School; Truven Health Analytics IAN GLENN, The Lewin Group DANA GOLDMAN, Precision Health Economics CLIFFORD GOODMAN, The Lewin Group DANIEL GOTTLIEB, Dartmouth Institute for Health Policy and Clinical Practice THOMAS HOERGER, RTI International PAUL HOGAN, The Lewin Group PETER HUCKFELDT, RAND Corporation MARCO D. HUESCH, University of Southern California PETER HUSSEY, RAND Corporation JOSIE IDOKO, The Lewin Group MELINA IMSHAUG, Truven Health Analytics CAMERON KAPLAN, University of Pittsburgh DARIUS LAKDAWALLA, Precision Health Economics BRUCE LANDON, Department of Health Care Policy, Harvard Medical School; Division of Primary Care and General Internal Medicine, Department of Medicine, Beth Israel Deaconess Medical Center MARY BETH LANDRUM, Department of Health Care Policy, Harvard Medical School CHRISTOPHER LAU, RAND Corporation BRANDY LIPTON, Acumen LLC vi

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HANGSHENG LIU, RAND Corporation THOMAS MACURDY, Acumen LLC WILLARD G. MANNING, University of Chicago JACLYN MARSHALL, The Lewin Group MICHAEL MCKELLAR, Department of Health Care Policy, Harvard Medical School ELLEN MEARA, Dartmouth Institute for Health Policy and Clinical Practice ATEEV MEHROTRA, RAND Corporation COURT MELIN, The Lewin Group KAY MILLER, Truven Health Analytics BRIAN MOORE, Truven Health Analytics CAITLIN MORRIS, The Lewin Group SIVIA NAIMER, Department of Health Care Policy, Harvard Medical School SEBASTIAN NEGRUSA, The Lewin Group SIMON NEUWAHL, RTI International EDWARD C. NORTON, University of Michigan MICHAEL K. ONG, University of California, Los Angeles DANIELLA PERLROTH, Acumen LLC TOMAS PHILIPSON, Precision Health Economics BRADY POST, The Lewin Group DANIEL ROGERS, Acumen LLC JOHN ROMLEY, Precision Health Economics SHAHIN SANEINEJAD, Acumen LLC JASON SHAFRIN, Acumen LLC VICTORIA SHIER, RAND Corporation ELEN SHRESTHA, Acumen LLC JONATHAN SKINNER, Dartmouth Institute for Health Policy and Clinical Practice MARK TOTTEN, RAND Corporation JASON WAHLMAN, The Lewin Group NANCY WALCZAK, The Lewin Group JOHN WARNER, The Lewin Group ADAM S. WILK, University of Michigan BENJAMIN YARNOFF, RTI International SAJID ZAIDI, Acumen LLC YUTING ZHANG, University of Pittsburgh WEIPING ZHOU, Dartmouth Institute for Health Policy and Clinical Practice vii

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REVIEWERS This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Research Council’s Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We wish to thank the following individuals for their review of this report: HENRY AARON, Brookings Institution STUART ALTMAN, Brandeis University GERARD F. ANDERSON, Johns Hopkins University DAVID A. ASCH, Professor of Medicine and Health Care Management; Executive Director, Penn Medicine Center for Innovation, University of Pennsylvania DAVID BLUMENTHAL, The Commonwealth Fund ELLIOT FISHER, Dartmouth Institute of Health Policy and Clinical Practice ELIZABETH A. MCGLYNN, Kaiser Permanente MARILYN MOON, American Institutes for Research ROBERT PHILLIPS, American Academy of Family Physicians JOHN ROTHER, National Coalition on Health Care ALAN M. ZASLAVSKY, Harvard Medical School STEPHEN ZUCKERMAN, The Urban Institute Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the observations nor did they see the final draft of the report before its release. The review of this report was overseen by DONALD M. STEINWACHS, Johns Hopkins Institute for Policy Studies, and CHARLES E. PHELPS, University of Rochester (Emeritus). Appointed by the National Research Council and Institute of Medicine, they were responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution. ix

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CONTENTS INTRODUCTION 1 Interim Committee Report, 1 Geographic Variation and the Pursuit of Value in U.S. Health Care, 2 Study Charge, 3 RESEARCH FRAMEWORK AND STATISTICAL MODELING APPROACH 3 GEOGRAPHY AND INDEXING VALUE 6 EVALUATION OF A GEOGRAPHIC VALUE INDEX 7 Conceptual Assessment of a Geographic Value Index, 7 Empirical Assessment of a Geographic Value Index, 8 CONTRIBUTORS TO GEOGRAPHIC VARIATION IN MEDICARE SPENDING 21 Variation in Utilization of Specific Health Care Services, 23 Sources of Variation Within Post-Acute Care, 25 DISCUSSION 29 LIMITATIONS 29 REFERENCES 31 APPENDIXES A GLOSSARY 35 B STATEMENT OF TASK 39 xi

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BOXES, FIGURES, AND TABLES Boxes 1 Commissioned Analyses, 4 2 Definitions of Geographic Units Frequently Used in Health Services Research, 5 Figures 1 Map of the United States with hospital referral region boundaries, 6 2 Top 20 percent of hospital referral regions and hospital service areas in drug spending, 10 3 Bottom 20 percent of hospital referral regions and hospital service areas in drug spending, 10 4 Variation in price- and risk-adjusted Medicare spending for stroke in a hospital referral region, 11 5 Variation in price- and risk-adjusted Medicare spending for hip fracture in a hospital referral region, 12 6 Variation in price- and risk-adjusted Medicare spending for heart attack in a hospital referral region, 12 7 Use of upper GI endoscopy among gastroenterologists treating gastroesophageal reflux disease, 14 8 Number of beneficiaries in HRRs categorized into 22 bins of monthly per capita spending, with input-price adjustment alone (top) and with input price adjustment, plus age, sex, and health- status adjustment (bottom), 18 9 Growth rates of spending among quintiles of HRRs based on expenditure levels in 1992, 22 10a-h Medicare service category utilization (monthly cost residual) by HRR, 25 11 Variation in total all-services per capita Medicare spending explained by categories of post-acute care spending and all other spending (2007-2009), 27 Tables 1 Pearson Correlation Coefficients for Medicare Beneficiary Utilization (Risk-Adjusted Per- Member-Per-Month Cost) Across Cohorts, 15 2 90th:10th Percentile Ratios of Input-Price-Adjusted Spending Across Payers, When Adjusted for Selected Predictors, 17 3 Pearson Correlations of Condition-Specific Medicare Quality and Condition-Specific Utilization, 20 4 Reduction in Variation in Post-Acute Care Spending and Total, All-Service Medicare Spending from Holding Each Component of Post-Acute Care at Its National Mean, 27 5 Wide Variation in Spending for Durable Medical Equipment and Home Health in Contiguous Florida Countries, 28 xiii

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