Health costs: no quick fix

John Stobo, MD, is senior vice president of University of California Health Sciences & Services. Tom Rosenthal, MD, is chief medical officer of the UCLA Medical Center and associate vice chancellor of the David Geffen School of Medicine at UCLA.

As the healthcare debate moves into second gear, policymakers are searching for ways both to increase access and reduce costs. Some believe there is a painless way to cut up to 30% in spending by eliminating waste and by requiring physicians in the highest-cost areas of the country to adopt the practices of the lowest-cost regions.

Many news stories and the Obama administration have cited a June article by Dr. Atul Gawande in the New Yorker magazine, as well as research done by the Dartmouth Atlas Project. Both assert that regional variations in Medicare expenditures occur, in great part, as a result of over-utilization of services and procedures. Already, legislation has been introduced in Congress that would reduce Medicare payments to places such as Los Angeles and redistribute the dollars to parts of the country that are deemed “more efficient.”

We agree that every effort should be made to curtail spending that does not show a proven health benefit. However, we disagree that policymakers can extrapolate research data from one region to arrive at conclusions regarding another, very different region. This overly simplistic analysis could have real-world consequences, including further diminishing access for the urban poor and to those middle-class residents who live near pockets of significant poverty.


Investigators from Dartmouth used Medicare bills submitted by doctors and hospitals for patients who died and compared spending across geographies and across hospitals. The theory is that because all the patients died, any variation in spending must be waste. They then extrapolated these findings to identify high-spending geographic regions and high-spending hospitals for all Medicare costs.

Voila: a map in which Minnesota is the paragon and Miami and Los Angeles are the profligates. We dug a little deeper into relevant state health and hospital-use data for Los Angeles County. What we found was quite striking and pointed to one of the key differences in costs and outcomes for healthcare paid by Medicare.

The per capita income in L.A. County is $24,705; in the state of Minnesota, it is $37,373. More than 38% of L.A. County citizens live below the poverty line, 57% are black or Latino, and 24% are uninsured. In Minnesota, 11.6% live at or below the poverty line, 9% are black or Latino, and only 8.8% are uninsured. In L.A. County’s core -- Central and South Los Angeles -- the differences are even more striking: 56% of the residents are at or below the poverty line, 80% are black or Latino, and 41% are uninsured.

Healthcare costs are significantly higher in areas of poverty. So while the hospital days per 1,000 Medicare enrollees is 2,429 in the central L.A. core, it is only 1,777 in the rest of L.A. County. Minnesota’s is 1,613 days. If you eliminate the two L.A. core areas in a comparison, the Medicare cost in L.A. County looks much like Minnesota’s. Also, non-Medicare hospital use in Los Angeles is significantly less than in Minnesota, hardly consistent with the theory that the medical care in L.A. is inefficient or wasted.

The L.A. core area is definitely not Minnesota, home of the Mayo Clinic, where there appears to be a surfeit of healthy and relatively wealthy patients and a vibrant, integrated healthcare infrastructure. In core poverty corridors, such as South and Central L.A., where there is not excess capacity in terms of beds, emergency departments, nurses and primary-care practitioners, patients are suffering because they have received too little care for too long and arrive at hospitals with multiple health conditions, requiring more extensive, and thus more expensive, care.

Controlling the rate of growth of healthcare spending is an imperative. Unfortunately, there are no easy fixes. It will require incentives for patients and physicians to reduce unnecessary healthcare utilization and to make prevention play a larger role. It will also require societal decisions about what constitutes value, particularly at the end of life.


Further, it means addressing the underlying causes of healthcare disparities -- disparities that will not disappear just because healthcare reform is enacted. Applying geographic-specific data to make cuts to particular regions, however, could lead to significant harm to the underserved, critically ill in Los Angeles and other U.S. cities and to the safety-net hospitals that serve them.