New research is calling into question the long-held belief that Minnesota is a model for low-cost health care.
While many studies have shown that the government’s Medicare program gets a good deal in Rochester, Duluth and Minneapolis, new work from four economists suggests that private insurers in those cities pay noticeably more for care.
The difference is that payment rates to hospitals are relatively constant within the Medicare program, but there’s great variation in what private insurers pay medical centers for services, said Zack Cooper, an assistant professor of health policy and economics at Yale University.
Cooper and his colleagues on Tuesday released a working paper with the National Bureau of Economic Research that examines price differences across the country.
“Many of the regions cited by policymakers as models for the nation like … Rochester, Minn., and La Crosse, Wis., have extremely high spending for the privately insured,” Cooper said in a statement. “Simply put, we cannot use these areas to shape federal policy.”
Hospitals questioned the analysis.
Matt Anderson of the Minnesota Hospital Association said it was based on data from insurers that don’t cover many people in the state. If the concern is about health care costs, data from local insurers show that hospital care actually declined as a percentage of health care cost growth between 2013 and 2014, Anderson said.
At the Mayo Clinic, Dr. Robert Nesse said the report put too much focus on the list prices that insurers pay for particular services, rather than long-term quality of care.
“I tend to look at costs over times, versus fee schedules,” Nesse said. “If I was a patient, that’s the way I’d look at it — what’s it cost me to get my care with a good outcome for a year, not what’s the fee for this test.”
Nesse also questioned the study’s conclusions because they were based on data that includes patients who traveled to the Mayo Clinic from afar with costly and complicated conditions.
The new study was not focused on Minnesota, but instead looked at the prices hospitals negotiate with health insurers across the country.
In 2011, hospital prices for lower-limb MRI exams were 12 times higher in the Bronx, N.Y. — the most expensive region in the country — compared with the cheapest region, according to the study of claims data from Minnetonka-based UnitedHealthcare and two other national insurance companies. Even within one region, prices can vary significantly.
In the Minneapolis region, for example, lower-limb MRI costs varied from as little as about $900 to as much as $2,900, the study found. Knee replacement prices varied from about $13,000 to about $26,000.
In calling out the differences, researchers encouraged individuals and employers to shop for the best deals as a way to contain health care costs. They also called on regulators to scrutinize mergers among hospitals, since the report found that “monopoly markets” had prices that were 15 percent higher than those in markets with four or more providers.
While the report is national in scope, it noted that President Obama held up Rochester and the Mayo Clinic as an example in 2009 when pushing for national health care legislation. Patients in the region get great care, Obama said, at a cost 20 percent to 30 percent below the national average.
But Cooper said in an interview that those cost estimates were based only on Medicare data. While Rochester has the 14th-lowest spending per Medicare beneficiary out of 306 regions, he said, it has the 11th highest spending per privately insured beneficiary.
There’s a similar dichotomy in Duluth and Minneapolis.
“When we think about efficiency, we’ve got to think about how areas look on the public and the private side,” he said. “Historically, we’ve only looked on the public side, where Rochester looks great. They don’t look so great on the private side.”
Cooper’s co-authors were Stuart Craig of the University of Pennsylvania, Martin Gaynor of Carnegie Mellon University and John Van Reenen of the London School of Economics.
If the study authors are concerned about hospital mergers creating market power, Anderson of the Minnesota Hospital Association said hospitals have a corresponding concern — massive mergers among the largest health insurers.
As for the variation in prices between hospitals, Anderson said the numbers can be misleading.
“One hospital may negotiate with a health plan to do a knee replacement for $13,000, but then charges more on its MRIs or its elbow replacements. …” Anderson said. “The contract negotiations between hospitals and health plans are looking at the entire array of services.”