Healthcare Cost Differences in the 1990s: The Influence of

Metropolitan Area Marketplace Dynamics

Merton D. Finkler

Lawrence University

August 14, 2003

Scope of Study

• How much variation in healthcare cost levels and growth rates exists across MSAs?

• Are Medicare payments to providers cost-shifted onto private payers?

• Do differences in demographic structure help explain differences in cost?

• Do differences in purchaser and provider market power help explain differences in cost?

Sponsor: Cobalt Corporation – Milwaukee, WI

Motivation

• Proprietary reports suggest significant differences in cost across MSAs

• Local policy makers suggest low Medicare payments drive higher commercial payment

• Payment for health care features different national and local incidence implications

Cost Indicators

• No comprehensive cost indicator at MSA level – Evidence: proprietary claims data and Medicare

• Comprehensive indicators exist for Medicare recipients and HMO enrollees

• Hospital indicators can be compared by MSA• Cost of serving FEHBP enrollees can be

compared• Focus on expenditures –limited attempts to

separate P from Q

Cost Shifting

• Focus of Nov 2002 – HCFO Conference• Common Claim: Low Medicare pay

implies high private pay• Morrissey: No shifting unless relative

bargaining power change exists or unexploited power exists

• Cutler – Evidence of cost shift in the 1980s and reduced resource use in the 1990s

Who Bears the Burden?

• Argument parallels the incidence of the property tax (except as tax on labor)

• National Level – Cost of health care is part of labor compensation, and labor bears most of the burden

• Local Level – Cost of health care distinguishes MSA’s ability to attract and retain labor; thus, borne locally

Data

• 20 large MSAs in the Central USA– Initial focus on Milwaukee (and 5 close MSAs)– Add 14 other MSAs – Madison,WI + 13 with

population greater than 600K and within 750 miles

• HMO data – InterStudy + U of MN• Hospitals – American Hospital Association• Demographics – Area Resource File, Census• Physicians – Area Resource File• FEHBP – Blue Cross Blue Shield Intermediary

Key Variables

• HMO Premium PMPM • Non-Governmental Payments to Hospitals per

Non-Elder• Medicare Payments (A and B) per Enrollee

– AAPCC through 1997

• Old to Young Working Age Population– Population 45- 64 / Population 20-34

• Competitiveness – Herfindahl for hospitals; #of HMOs*HMO Penetration

Health Care Costs

• HMO premium PMPM– 2000 range - $123 (DES) to $178 (MSP)

– 1990 – 2000 growth – 33% (MEM) to 97% (MKE)

• Non-Governmental Payment per Non-Elder– 2000 range - $587 (KC) -$1,165 (IND)

– 1990 – 2000 growth - 18% (DAY) to 161% (LOU)

• FEHBP – PPO - $PMPM– 2000 range - $114 (DAY) - $228 (MKE)

Health Care Cost Indicators by Metropolitan Area

MSA HMO PMPM HMO PMPM HMO Growth Growth NonGov H$/NE NonGov H$/NE Hospital $ Growth Growth FEHPB FEHBP1990 2000 Rank Rate Rank 1990 2000 Rank Rate Rank $PMPM Rank

Akron, OH PMSA $95.97 $146.60 12 52.8% 15 $601.54 $872.57 12 45.1% 10 $129.28 15Chicago, IL PMSA $88.27 $141.97 17 60.8% 8 $597.71 $901.61 9 50.8% 9 $178.47 5Cincinnati, OH-KY-IN PMSA $94.06 $143.56 15 52.6% 16 $306.21 na na $120.90 17Cleveland, OH PMSA $96.14 $153.28 6 59.4% 10 $602.11 $1,005.59 5 67.0% 4 $134.85 13Columbus, OH MSA $91.56 $146.92 11 60.5% 9 $607.83 $960.58 7 58.0% 7 $119.06 18Dayton-Springfield, OH MSA $88.02 $146.20 13 66.1% 6 $665.57 $787.35 15 18.3% 17 $113.77 20Des Moines, IA MSA $90.19 $123.14 20 36.5% 19 $738.65 $1,061.07 4 43.6% 11 $126.50 16Detroit, MI PMSA $103.61 $151.78 7 46.5% 18 $613.08 $862.88 13 40.7% 12 $134.00 14Fort Wayne, IN MSA $92.97 $147.00 10 58.1% 11 $560.42 $893.86 10 59.5% 6 $136.58 12Grand Rapids, MSA $90.84 $142.91 16 57.3% 13 $357.84 $739.08 17 106.5% 2 $118.23 19Indianapolis, IN MSA $100.84 $165.87 3 64.5% 7 $712.75 $1,164.47 1 63.4% 5 $150.57 9Kansas City, MO-KS MSA $94.14 $148.18 8 57.4% 12 $444.53 $587.35 18 32.1% 14 $157.09 8Louisville, KY-IN MSA $81.49 $147.37 9 80.8% 5 $357.84 $934.17 8 161.1% 1 $145.59 10Madison, WI MSA $88.63 $162.74 4 83.6% 4 na $1,137.68 2 na $165.86 6Memphis, TN-AR-MS MSA $93.70 $124.81 19 33.2% 20 $615.00 na na $161.48 7Milwaukee, WI PMSA $89.21 $175.50 2 96.7% 1 $591.42 $1,110.45 3 87.8% 3 $227.52 1Minneapolis-St. Paul, MN MSA $94.60 $178.73 1 88.9% 2 $552.23 $854.23 14 54.7% 8 $182.22 4Omaha, NE-IA MSA $88.07 $162.32 5 84.3% 3 $742.25 $1,000.43 6 34.8% 13 $206.24 2Pittsburgh, PA MSA $87.44 $128.50 18 47.0% 17 $739.52 $876.30 11 18.5% 16 $138.10 11St. Louis, MO-IL MSA $94.07 $143.74 14 52.8% 14 $598.92 $745.28 16 24.4% 15 $193.44 3Mean $92.19 $149.06 62.0% $579.23 $916.39 58.2% $151.99Median $92.26 $146.96 58.8% $600.23 $897.74 49.6% $141.85Standard Deviation $4.97 $14.70 17.1% $129.08 $150.10 16.3% $31.79

HMO PMPM refers to the insurance premium per member per month paid for an HMO planNonGov H$/NE refers to non Medicare or Medicaid payments received by hospitals per resident under age 65FEHBP refers to the Federal Employees Health Benefits Program (PPO expenses per member per month)

Sources: InterStudy, University of Minnesota, American Hospital Association, and Blue Cross and Blue Shield Association

Table 1

Medicare Payment Levels

• Total Medicare Payments – 2000 PEPM– $347 (FTW) to $559 (PIT) ; $464 (USA)– 1990 – 2000 Growth: 23% (DET) to 58% (FTW) ; 69% - (USA)

• Medicare Part A – 2000– $195 (FTW) to $353 (PIT); $263 (USA)– 1990 – 2000 Growth: 24% (DES) to 57% (COL) 66% - USA

• Medicare Part B – 2000– $140 (MAD) to $206 (PIT); $200.87 (USA)– 1990 – 2000 Growth: 11% (DET) to 96% (MEM)– 74% - USA

Medicare Part A and Part B Payments by Metropolitan Area

MSA Part A Part B Total Rank Part A Part B Total Rank Part A Part B Total Rank1990 1990 1990 1990 2000 2000 2000 2000 Growth Growth Growth Growth

Akron, OH PMSA $199.08 $110.21 $309.29 7 $284.96 $187.55 $472.51 4 43.1% 70.2% 52.8% 4Chicago, IL PMSA $221.12 $126.72 $347.84 3 $320.05 $173.86 $493.91 3 44.7% 37.2% 42.0% 13Cincinnati, OH-KY-IN PMSA $197.05 $104.68 $301.73 8 $241.09 $168.62 $409.71 15 22.3% 61.1% 35.8% 18Cleveland, OH PMSA $210.15 $125.49 $335.64 5 $286.40 $180.96 $467.36 6 36.3% 44.2% 39.2% 16Columbus, OH MSA $167.16 $108.63 $275.79 16 $263.05 $171.14 $434.19 10 57.4% 57.5% 57.4% 2Dayton-Springfield, OH MSA $172.87 $106.11 $278.98 14 $238.22 $179.12 $417.34 12 37.8% 68.8% 49.6% 9Des Moines, IA MSA $173.51 $98.08 $271.59 17 $215.14 $154.23 $369.37 18 24.0% 57.3% 36.0% 17Detroit, MI PMSA $238.02 $183.59 $421.61 1 $313.75 $203.22 $516.97 2 31.8% 10.7% 22.6% 20Fort Wayne, IN MSA $135.13 $84.14 $219.27 20 $195.34 $151.29 $346.63 20 44.6% 79.8% 58.1% 1Grand Rapids,MI MSA $161.85 $96.50 $258.35 18 $206.19 $181.93 $388.12 17 27.4% 88.5% 50.2% 7Indianapolis, IN MSA $186.42 $105.78 $292.20 12 $266.11 $172.08 $438.19 9 42.7% 62.7% 50.0% 8Kansas City, MO-KS MSA $213.56 $129.02 $342.58 4 $275.63 $165.26 $440.89 7 29.1% 28.1% 28.7% 19Louisville, KY-IN MSA $186.06 $92.10 $278.16 15 $253.85 $143.25 $397.10 16 36.4% 55.5% 42.8% 11Madison, WI MSA $153.04 $86.98 $240.02 19 $225.02 $139.70 $364.72 19 47.0% 60.6% 52.0% 6Memphis, TN-AR-MS MSA $190.55 $96.29 $286.84 13 $251.86 $188.32 $440.18 8 32.2% 95.6% 53.5% 3Milwaukee, WI PMSA $182.03 $116.31 $298.34 9 $257.56 $166.65 $424.21 11 41.5% 43.3% 42.2% 12Minneapolis-St. Paul, MN MSA $200.64 $96.15 $296.79 10 $263.81 $150.29 $414.10 14 31.5% 56.3% 39.5% 15Omaha, NE-IA MSA $203.55 $90.56 $294.11 11 $257.49 $157.23 $414.72 13 26.5% 73.6% 41.0% 14Pittsburgh, PA MSA $229.83 $137.19 $367.02 2 $352.62 $206.03 $558.65 1 53.4% 50.2% 52.2% 5St. Louis, MO-IL MSA $214.99 $104.82 $319.81 6 $288.17 $180.59 $468.76 5 34.0% 72.3% 46.6% 10Regional Median $193.80 $105.30 $299.10 $260.31 $171.61 $431.92 34.3% 63.0% 44.4%Regional Mean $191.83 $109.97 $301.80 $262.82 $171.07 $433.88 37.2% 58.7% 44.6%Regional Standard Deviation $26.31 $22.67 $45.60 $38.79 $18.24 $52.18 9.5% 20.0% 9.4%United States per capita cost $158.67 $115.53 $274.20 $263.10 $200.87 $463.97 65.8% 73.9% 69.2%

Part A refers to Medicare payments to hospitals per beneficiaryPart B refers to Medicare payments to physicians and clinics per beneficiaryTotal refers to the sum of Part A and Part B

Table 2

Metropolitan Demographics

• Per Capita Income – 2000 - $26,877 (FTW) to $32,540 (CHI)

$28,738(USA)

– 1990 – 2000 growth – all but St. Louis (45%-56%) – USA – 50%

• Old/Young Ratio– 2000 – 84% (MEM) to 135% (PIT); 105% (USA)

– 1990 – 2000 Growth - 23% (MEM) to 81% (MAD)

USA – 44%

MSA Per Cap Inc Per Cap IncGrowth Old/Young Old/Young Old/Young Growth Old/Young Aged 65+ Age 65+ Growth % Poverty1990 2000 Rate 1990 2000 Rank Rate Rank 1990 2000 Rate 1990

Akron, OH PMSA 18,004 26,896 49.4% 77.8% 117.2% 5 50.7% 5 13.1% 13.4% 2.4% 12.10%Chicago, IL PMSA 22,441 32,540 45.0% 71.0% 94.0% 16 32.4% 18 11.4% 10.8% -6.1% 11.40%Cincinnati, OH-KY-IN PMSA 18,463 27,818 50.7% 74.2% 106.0% 9 42.9% 12 10.3% 11.9% 15.0% 12.02%Cleveland-Lorain-Elyria, OH PMSA 19,871 29,545 48.7% 85.8% 123.0% 2 43.4% 11 14.2% 14.5% 2.3% 11.98%Columbus, OH MSA 18,322 28,027 53.0% 63.4% 87.0% 19 37.3% 14 10.6% 9.7% -8.3% 11.99%Dayton-Springfield, OH MSA 17,980 26,952 49.9% 83.2% 120.4% 4 44.7% 8 12.6% 13.1% 4.2% 11.88%Des Moines, IA MSA 19,698 29,446 49.5% 70.8% 104.0% 12 46.9% 6 12.7% 10.9% -14.2% 8.84%Detroit, MI PMSA 20,524 31,072 51.4% 78.0% 105.0% 11 34.7% 16 11.6% 12.6% 8.4% 12.93%Fort Wayne, IN MSA 18,033 26,877 49.0% 75.0% 107.8% 8 43.7% 10 12.2% 12.3% 1.1% 7.62%Grand Rapids-Muskegon-Hollnd,MI MSA 17,727 27,027 52.5% 66.7% 101.1% 13 51.7% 4 11.3% 11.2% -0.8% 9.60%Indianapolis, IN MSA 19,170 28,760 50.0% 72.8% 97.0% 14 33.3% 17 11.1% 10.5% -4.9% 1.12%Kansas City, MO-KS MSA 19,461 28,251 45.2% 75.3% 106.0% 9 40.9% 13 12.3% 11.4% -7.7% 9.80%Louisville, KY-IN MSA 18,168 27,852 53.3% 82.0% 110.9% 6 35.3% 15 12.8% 13.0% 1.2% 12.78%Madison, WI MSA 20,087 30,902 53.8% 50.4% 91.0% 17 80.6% 1 9.3% 9.7% 4.1% 10.50%Memphis, TN-AR-MS MSA 17,709 27,657 56.2% 68.6% 84.1% 20 22.6% 20 10.5% 10.4% -1.3% 18.40%Milwaukee-Waukesha, WI PMSA 19,794 30,108 52.1% 73.7% 108.0% 7 46.5% 7 12.5% 12.6% 0.9% 11.70%Minneapolis-St. Paul, MN-WI MSA 21,240 31,772 49.6% 61.6% 97.0% 14 57.5% 2 10.3% 9.6% -6.9% 8.15%Omaha, NE-IA MSA 18,512 28,134 52.0% 69.1% 88.4% 18 27.9% 19 10.9% 10.8% -0.8% 9.54%Pittsburgh, PA MSA 18,776 27,920 48.7% 93.6% 135.0% 1 44.3% 9 17.1% 17.5% 2.5% 12.03%St. Louis, MO-IL MSA 20,931 27,209 30.0% 78.2% 123.0% 2 57.3% 3 11.7% 12.8% 9.5% 10.53%Mean 19,246 28,738 49.5% 73.5% 105.3% 43.7% 11.9% 11.9% 0.0% 10.7%Median 18,973 28,081 50.0% 74.0% 105.5% 43.5% 11.7% 11.6% 1.0% 11.6%Standard Deviation 1,317 1,728 5.3% 9.4% 13.5% 12.6% 1.7% 1.9% 6.8% 3.2%

Per Cap Inc refers to income per capitaOld/Young refers to the ratio of the population aged 45 to 64 to those aged 20 to 34.Age 65+ refers to the percentage of the population aged 65 or older

Table 3

Medical Care Providers

• The # of Hospitals declined – 14 out of 20• Commercial Admissions Share 2000

– 37% (PIT) to 58% (MAD)

• Herfindahl Index for Commercial Admits– 2000: 416 (CHI) to 4265 (FTW)– Growth 1990 – 2000: -4% (GRA) to 288% (CLE)

• Physicians per 1,000 residents– 2000: 1.6 (FTW,GRA) to 3.9 (MAD)– Growth 1990 – 2000: 0% (CIN) to 24% (DAY)– Specialists 2000: 1.0 (FTW) to 2.6 (MAD)

Table 4MSA # of Hospitals %Commercial Admissions Commercial Herfindahl for Hospitals Physicians per 1,000

1990 2000 Growth 1990 2000 Growth 1990 2000 Rank Growth Rank 1990

Akron, OH PMSA 7 6 -14.3% 50.2% 46.7% -7.0% 1865 2284 9 22.5% 17 1.9

Chicago, IL PMSA 73 84 15.1% 53.1% 48.2% -9.2% 244 416 20 70.5% 7 2.2

Cincinnati, OH-KY-IN PMSA 13 12 -7.7% 53.2% 51.3% -3.6% 1302 3950 3 203.4% 3 2.2

Cleveland-Lorain-Elyria, OH PMSA 31 32 3.2% 50.9% 43.8% -13.9% 722 2803 8 288.2% 1 2.6

Columbus, OH MSA 13 12 -7.7% 55.7% 55.3% -0.7% 1894 3038 7 60.4% 10 2.0

Dayton-Springfield, OH MSA 11 8 -27.3% 54.7% 45.7% -16.5% 1188 1959 13 64.9% 8 1.7

Des Moines, IA MSA 7 6 -14.3% 52.8% 48.4% -8.3% 2900 4150 2 43.1% 13 1.6

Detroit, MI PMSA 54 41 -24.1% 50.8% 47.6% -6.3% 1031 1224 19 18.7% 18 1.9

Fort Wayne, IN MSA 5 8 60.0% 60.0% 44.8% -25.3% 3282 4265 1 30.0% 14 1.4

Grand Rapids-Muskegon-Hollnd,MI MSA 8 10 25.0% 55.6% 47.2% -15.1% 2111 2023 12 -4.2% 20 1.4

Indianapolis, IN MSA 17 19 11.8% 59.3% 47.2% -20.4% 1296 1616 16 24.7% 15 2.4

Kansas City, MO-KS MSA 24 23 -4.2% 51.0% 43.4% -14.9% 1022 2069 11 102.4% 5 2.1

Louisville, KY-IN MSA 12 10 -16.7% 53.1% 47.3% -10.9% 1736 3374 4 94.4% 6 2.4

Madison, WI MSA 4 4 0.0% 62.0% 57.8% -6.8% 3255 3373 5 3.6% 19 3.7

Memphis, TN-AR-MS MSA 11 8 -27.3% 48.9% 37.6% -23.1% 2122 3103 6 46.2% 12 2.4

Milwaukee-Waukesha, WI PMSA 21 19 -9.5% 58.8% 47.9% -18.5% 1087 1603 17 47.5% 11 2.3

Minneapolis-St. Paul, MN-WI MSA 27 23 -14.8% 64.6% 56.4% -12.7% 1157 1860 14 60.8% 9 2.1

Omaha, NE-IA MSA 10 9 -10.0% 57.1% 48.2% -15.6% 1413 1753 15 24.1% 16 2.5

Pittsburgh, PA MSA 37 35 -5.4% 42.4% 37.4% -11.8% 434 1503 18 246.3% 2 2.5

St. Louis, MO-IL MSA 28 25 -10.7% 52.4% 43.1% -17.7% 824 2194 10 166.3% 4 2.2

Mean 21 20 -3.9% 54.3% 47.3% -12.9% 1,544 2,428 80.7% 2.2

Median 13 12 -8.6% 53.2% 47.3% -13.3% 1,299 2,132 53.9% 2.2

Standard Deviation 18 18 20.2% 5.1% 5.2% 6.5% 858 1,038 82.0% 0.5

% Commercial Admissions refers to the percentage of admissions paid for by commercial payers.

Commercial Herfindahl for Hospitals refers to a herfindahl index calculated on the basis of commercial admission market shares for each hospital system.

Physicians per 1,000 refers to the number of practicing physicians per 1,000 residents.

Specialists/1000 equals the number of practicing non-primary care physicians per 1,000 residents

HMO Characteristics

• HMO Penetration Rate– 2000: 11% (MEM) to 61% (MAD)

– 1990 – 2000 Growth: 50% (MSP) to 705% (IND)

• HMO Competitiveness– 2000: 1.03 (OMA) to 7.27 (MAD)

– 1990 – 2000 Growth: 50% (MSP) to 1992% (IND)

• Capitation % - Specialist Revenue 2000– 2000 0% (OMA,DAY) to 67% (MAD)

MSA HMO Penetration Rate HMO Competitiveness Capitation - % Specialist Revenue # of HMOs1990 2000 Growth Rank 1990 2000 Rank Growth 1995 2000 Rank Growth

Akron, OH PMSA 7.8% 14.9% 89.8% 18 0.63 2.38 14 279.6% 19.7% 17.9% 8 -9.0%Chicago, IL PMSA 9.3% 19.6% 110.7% 16 2.32 3.71 8 60.1% 33.9% 47.6% 3 40.2%Cincinnati, OH-KY-IN PMSA 9.5% 30.2% 217.3% 8 1.24 6.64 3 437.0% 19.1% 1.5% 17 -92.2%Cleveland-Lorain-Elyria, OH PMSA 8.2% 22.5% 174.6% 11 0.82 4.27 7 421.8% 18.9% 26.0% 6 37.5%Columbus, OH MSA 7.1% 21.8% 207.8% 9 0.92 3.49 10 278.9% 18.1% 3.0% 15 -83.4%Dayton-Springfield, OH MSA 6.8% 45.7% 571.9% 2 0.48 6.86 2 1339.8% 28.4% 0.2% 19 -99.3%Des Moines, IA MSA 10.6% 24.7% 132.8% 15 0.42 1.97 16 365.6% 0.3% 32.3% 5 12012.5%Detroit, MI PMSA 11.5% 22.7% 98.0% 17 1.38 3.18 12 130.9% 18.3% 43.6% 4 137.8%Fort Wayne, IN MSA 5.7% 14.3% 149.6% 13 0.29 1.57 18 449.1% 12.1% 13.6% 12 12.4%Grand Rapids-Muskegon-Hollnd,MI MSA 8.6% 29.3% 241.7% 7 0.60 1.76 17 192.9% 0.3% 2.4% 16 860.0%Indianapolis, IN MSA 2.7% 21.4% 704.8% 1 0.13 2.79 13 1992.4% 35.3% 48.2% 2 36.4%Kansas City, MO-KS MSA 9.6% 34.4% 257.6% 5 1.35 5.84 4 334.3% 4.0% 13.6% 12 242.6%Louisville, KY-IN MSA 10.3% 31.6% 205.3% 10 0.93 4.42 6 375.0% 17.1% 13.9% 9 -18.6%Madison, WI MSA 17.0% 60.6% 256.7% 6 1.19 7.27 1 511.4% 44.6% 67.4% 1 51.2%Memphis, TN-AR-MS MSA 4.4% 10.9% 147.0% 14 0.22 1.42 19 542.2% 7.3% 20.2% 7 175.8%Milwaukee-Waukesha, WI PMSA 16.7% 29.7% 77.6% 19 1.50 4.45 5 196.0% 42.8% 13.9% 9 -67.5%Minneapolis-St. Paul, MN-WI MSA 18.3% 27.4% 49.6% 20 2.20 3.29 11 49.6% 21.2% 8.3% 14 -60.8%Omaha, NE-IA MSA 5.5% 14.7% 165.4% 12 0.28 1.03 20 271.6% 6.2% 0.0% 20 -100.0%Pittsburgh, PA MSA 4.8% 23.3% 386.1% 3 0.34 2.33 15 594.4% 2.8% 1.3% 18 -53.6%St. Louis, MO-IL MSA 6.0% 25.8% 327.1% 4 0.79 3.61 9 360.0% 7.8% 13.8% 11 77.3%Mean 9.0% 26.3% 191.1% 0.90 3.61 459.1% 17.9% 26.3% 26.3%Median 8.4% 24.0% 190.0% 0.80 3.39 362.8% 18.2% 13.9% 24.4%Standard Deviation 4.2% 11.4% 164.8% 0.62 1.86 451.4% 13.5% 19.1% 2681.6%

HMO Penetration Rate refers to the percentage of the population enrolled in an HMO.HMO Competitiveness equals the product of the HMO penetration rate and the number of HMOsCapitation - % Specialist Revenue equals capitation payments as a percentage of HMO payments to non-primary care physicians

Table 5

Table 6Non-Governmental Payments to Hospitals

Mean $744.97Std. Dev. $194.24

Adjusted R Square 0.781Standard Error $90.86Observations 57F Statistic 23.21Significance 1.91*E-14

Coefficient Standard Error "t" Statistic P ValueIntercept -48.83 339.87 -0.144 0.886Medicare Part A -0.117 0.507 -0.23 0.819Old/Young -301.95 171.67 -1.759 0.085Year 51.48 7.288 7.063 6.56E-09Commercial Share 488.2 405.92 1.203 0.235HMO*Penetration -24.36 14.35 -1.697 0.096Hospital Herfindahl -0.051 0.017 -1.19 0.234MDs/1000 60.16 33.39 1.8 0.078HMO Penetration Rate 94.51 232.85 0.406 0.687Hospital Admits/ 1,000 4.318 0.725 5.953 3.17E-07

Implications of Regression

• Commercial payments per NE increased $51/year• HMO competition reduced hospital payment• Hospital payments related to MDs/1000• Medicare payments do not influence commercial

payments• Age structure of population negatively influences

commercial payment level• Hospital concentration is negatively but

insignificantly related to commercial payment • Practice style (admissions/1000) matters

Table 7HMO Premium per Member per Month

Dependent Variable: HMO premiums per member per monthMean $119.99Std. Dev. $26.05

Adjusted R Square 0.829Standard Error $10.77Observations 60F Statistic 41.9Significance 0.0001

Coefficient Standard Error "t" Statistic P ValueIntercept 106.94 15.59 6.859 0.0001Medicare AAPCC -0.0064 0.037 -0.171 0.865Old/Young -16.37 15.2 -1.077 0.286Year 6.16 0.788 7.819 0.0001HMO Penetration 43.94 25.1 1.75 0.086HMO*Penetration -1.289 1.4 -0.921 0.361Hospital Herfindahl -0.00504 0.0019 -2.601 0.012MDs/1000 1.896 3.101 0.611 0.544

Implications of Regression

• HMO PMPM rose $6.13 per year• PMPM negatively related to hospital

concentration level • HMO penetration rate positively influences

PMPM (possible reverse causality)• HMO competitiveness measure does not

influence PMPM• Medicare payment levels do not affect PMPM• Old/Young ratio does not affect PMPM

Conclusions

• Indianapolis, Madison, Milwaukee, and Omaha deliver relatively expensive commercial healthcare

• Akron, Cincinnati, Grand Rapids, and Pittsburgh deliver relatively cheap commercial healthcare

• Medicare cost shifting non-existent in the aggregate for either specification

• Age structure plays a limited role in explaining hospital payments or HMO premiums

• Relative bargaining power seems to matter for hospital payments

Future Directions

• Increase the number of MSAs analyzed• Investigate bargaining power e.g., MD group

practices membership• Investigate reverse causality (HMO PMPM)

through evaluation of enrollee age structure• Differentiate effects of hospital concentration:

scale and contracting economies vs. bargaining power