Medicare Release of Provider Payment Data: Four Preliminary Observations for Hospitals

The federal government’s April 9th release of Medicare provider payment data is a clear step toward increased visibility of variation in spending, utilization, and practice patterns throughout healthcare.

Although these data focus at the physician level, hospitals also will receive attention from the government, media, and others. Scrutiny of physician payment for specific procedures and specialties that are perceived as outliers inevitably also will include hospital payment for related tests, outpatient care, and inpatient care, as well as attention to hospital utilization patterns generally.

Kaufman Hall is focused on understanding the meaning of these data for hospitals, including the geographic variation in spending and utilization, factors that could be driving this variation, and implications for hospital strategy.

Our initial review of the data leads to four observations that we will extend as our analysis continues.

Observation 1: Transparency will change behavior.

This release of sensitive, long-inaccessible data is a bold step forward in visibility of provider practices. That visibility will intensify as specific providers are held accountable for practices deemed to be inappropriate. Under the sociological principle “visibility of consequences,”  the more performance consequences are made public, the more behavior tends to change. In this case, the more providers are held accountable for high utilization, the more similar professionals will examine and change their own use patterns.

The data are far from clean or perfect, but conclusions are being drawn and certain providers are in the spotlight. This transparency movement will only intensify, increasing the expectations that hospitals substantiate their costs and utilization and that they make quality, cost, and price information available to the public in a timely and easily accessible manner.

Observation 2: Variation in Medicare spending and utilization will be a target of focused cost-reduction efforts.

Preliminary analysis of the physician-specific data suggests wide variations among states and regions in revenue for specific specialists for the Medicare population served. This is similar to the variation in spending levels that has been tracked and reported for Medicare spending in hospital referral regions through The Dartmouth Atlas Project over the past two decades. Like the hospital data, many of the variations are not likely explained by demographic and other population-specific local factors.

For example, revenue per Medicare beneficiary for orthopedic surgeons appears to be far higher in certain regions than in others, and utilization for total knee replacement procedures also varies significantly by region. In the current spending climate, Medicare and others will focus attention on outliers with high revenue and utilization levels where there is no demonstrable difference in acuity or other factors.

Hospitals will feel this scrutiny as well. In the short term, if a specific physician associated with a hospital is identified as a high-utilization outlier, bad publicity for the hospital could result. Scrutiny naturally will extend to the facility component of those services—inpatient or outpatient.

Kaufman Hall will continue to assess the data to show variation in spending and utilization by region and potential causes, such as the level of advancement in a market’s movement toward population health management, as well as the strategic implications of this variation.

Observation 3. Physician supply appears to be a significant factor in the variation of healthcare utilization among markets.

As organizations make the transition to value, many are already facing constraints relative to their physician network. These constraints directly affect the organization’s ability to influence care across the continuum and ensure that care is provided in the right place at the right time and in the right way. For example, our preliminary analysis indicates a high degree of variation among states in emergency department (ED) use. High ED utilization may suggest that these areas have an undersupply of primary care physicians, urgent care centers, and other options, leading patients to turn to emergency departments for non-emergent care. Or, like findings documented by The Dartmouth Atlas, high use might signify a high concentration of ED departments and specialists in that area.

Observation 4: Insights into provider charges, along with increases in consumer-driven healthcare, will influence patients’ choices among providers.

Except for small adjustments for regional variations in practice expense, Medicare payments are the same across physicians for similar services. However, the charges that providers submit are not the same, driven by each practice’s fee schedule to ensure the proper balance of revenue and competitiveness. The detail provided in Medicare’s provider data release enables consumers, who are increasingly exposed to first-dollar healthcare costs, to understand the relative costs of services among providers as they make purchase decisions. If a hospital’s physician enterprise has measurably higher or lower prices, the increased transparency could affect their business negatively or positively.

The data have clear limitations. They focus at the physician level, drawing initial attention to issues such as physician revenue by specialty rather than broader spending and utilization trends. The data cover only 2012, making longitudinal trending impossible at this point. By themselves, the data do not account for factors such as patient acuity, which can challenge some of the conclusions that can be drawn. Costs of medications supplied directly by providers (for example, eye and cancer drugs) are included in some of the provider-specific payments, skewing revenue for certain specialists. However, these limitations will not reduce the attention the data will receive.

Implications for Hospitals

This data release is another early step in a much larger movement to transform our care delivery system by improving quality and reducing unnecessary cost and variation. This movement will continue forward rapidly, and hospitals should be seeking to understand what the data mean for them and how such data can inform their strategic decision making.

As a start, hospitals should ensure that their cost, price, and quality data are ready for public scrutiny and should lead efforts to educate their communities about the newly transparent data. Transparency offers providers the opportunity to examine and improve their operations and take the lead in transforming their organizations for a more efficient, effective, and sustainable healthcare system within their regions.

Hospitals should understand the specific implications of the data for their own organizations, including implications for physicians associated with the hospital and related hospital services. Hospitals in areas with high utilization and spending should anticipate government, media, and consumer scrutiny, followed by focused efforts to control spending. Thus, hospitals should analyze the available data to understand their own use patterns and how potential reductions in utilization may affect them over time.

Hospitals also should view the data in the larger context of health system change and their own strategies to succeed in a more efficient and effective health system focused on consumers, outpatient care, and wellness.

We look forward to bringing you further insights into the recently released provider data and engaging in conversations around the implications, challenges, and opportunities of this release and other market-changing trends.

1Gordon, G., and Marquis, S.: “Freedom, Visibility of Consequences, and Scientific Innovation.” American Journal of Sociology 72 (No. 2), Sept. 1966.