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Study puts Buffalo area among lowest in U.S. for cost of health services

Delivering babies, providing CT scans, opening blocked arteries and providing many other health care services cost far less in the Buffalo area than in other parts of the country, a new study shows.

Buffalo ranked second-lowest – behind Honolulu – in the first comparison of commercial health insurance companies’ spending for the care their customers received from doctors and hospitals.

Like comparisons of Medicare spending, the Niagara Health Quality Coalition ranking found wide variations in costs across the nation.

The study found a 29 percent difference in overall spending between the lowest-cost region and Santa Cruz, Calif., the highest-cost region.

Private health spending costs nearly $1 trillion a year in the United States.

The findings are based on an analysis of data used in a 2013 Institute of Medicine report on variations in health care spending, one of many reports over the years to look at why it costs so much more to care for patients in some areas of the country.

“There are markets where providers are charging a lot more with no clear medical benefit. It’s the markups,” said Bruce Boissonnault, president of the coalition.

The thinking is that if researchers can figure out what the most efficient providers of health care are doing right, the lessons can be applied nationally to better control health costs and improve quality.

Boissonnault also makes an economic development argument for understanding the variations.

“A lot of companies pay more for health insurance than they do for the raw materials for their products,” he said. “That’s not a trivial issue for companies looking to relocate.”

Western New York should use its low-cost status to attract businesses to the region, he said.

In the coalition report, the 10 lowest-cost regions in order are Honolulu; Buffalo; the Bronx; Rochester; Tacoma Park, Md.; Dubuque, Iowa; Tucson, Ariz.; Washington, D.C.; Baltimore; and Dearborn, Mich.

Of the 274 areas reviewed, the 10 with the highest costs are Santa Cruz, Calif.; Huntington, W.Va.; Charleston, W.Va.; Gulfport, Miss.; Wausau, Wis.; Contra Costa County, Calif.; Green Bay, Wis.; Anchorage, Alaska; Sacramento, Calif.; and Marshfield, Wis.

The cost variations appear to exist in different regions even when spending is adjusted for differences in age, gender and the health status of patients.

But the issue is complicated.

Low- and high-cost areas for commercial insurance costs don’t match up with low- and high-cost areas for Medicare, the federal health plan for people 65 and older.

For instance, Baltimore and Dearborn rank as high spenders for Medicare but not for commercial insurance medical costs.

Researchers say that’s because the government sets Medicare’s prices, and differences in spending across geographic regions are largely driven by differences in the use of post-hospital services, such as nursing facilities.

Private insurers negotiate with doctors and hospitals, so the cost of private health spending can be heavily influenced by the negotiating power of insurers or medical providers in a particular market.

Still, the variations across the nation, as well as between medical providers within a region, remain unexplained.

“That’s because geographic regions don’t make health care decisions. Individual doctors do,” said Joseph Newhouse, the Harvard University economist who led the study for the Institute of Medicine, which advises Congress and federal agencies.

The coalition comparisons incorporated how many services were used, and not just the unit cost of particular services.

So Buffalo’s lower overall cost comes as good news, right?

Maybe, but maybe not, said John Bartimole, president of the Western New York Healthcare Association, an advocacy group for hospitals here.

“The commercial insurers in this area look at the federal Medicare rates and try not to stray too far from them,” he said.

“That keeps health insurance premiums down, but it doesn’t give hospitals enough money to adequately reinvest in buildings, equipment and personnel. Hospitals and insurers are both working to improve access and quality, but do the hospitals have enough to really focus on those things?” Bartimole said.

Several reasons account for why Buffalo ranks as a low-spending area for health care.

There is a history of not-for-profit hospitals and insurers dominating the market. There also is competition for patients.

“The not-for-profit status is a big difference why, and you see it across the state,” Boissonnault said.

Others aren’t so sure. Profit margins of for-profit insurers remain largely in the single digits, so profit may not be a difference maker, said Newhouse, who sits on the board of directors of Aetna Inc., an insurance company.

He said the idiosyncrasies of physician practice styles may also play a big role in why some regions rank high for spending and others do not.

Dr. Michael Cropp, chief executive officer of Independent Health, offered a similar analysis.

“We have not seen so much of what’s happened elsewhere, where health care has become like a sub-economy, where it has been all about building health care businesses that generate uncontrolled volume,” he said.

“There has been more dialogue here among payers, providers and others about being smarter about using limited resources,” he said.

All of which leads to one other simple explanation. Things are just cheaper in the Buffalo area.

“We’re also lower cost because our unit costs for health care are lower. It’s like real estate. We’re just less expensive,” said Ronald Mornelli, senior vice president and chief network officer at BlueCross BlueShield of Western New York.

Medicare data are public. Boissonnault said the federal government should take steps to also make the sort of commercial insurance medical claims information that he used in the report regularly available to the public.