SOURCE: National Business Group on Health

National Business Group on Health

March 18, 2010 10:00 ET

National Business Group on Health, Milliman Release Report on Hospital Value

Study Reveals Hospitals Can Be Profitable and Deliver High Value to Medicare and Commercial Payers

WASHINGTON, DC--(Marketwire - March 18, 2010) -  Some U.S. hospitals can be profitable and deliver high value for both Medicare and commercial payers for inpatient care, while others may provide high value for Medicare, but are profitable by charging commercial payers considerably more. That's the conclusion of a new study released today by the National Business Group on Health, a non-profit group of 280 large employers and performed by Bruce Pyenson and colleagues at Milliman, Inc., a premier global and actuarial consulting firm. The report, however, found these "high and low value cities" have very little in common when it comes to factors that typically affect costs, which suggests that hospital management, rather than external factors might drive high or low value. The report also identified several cities that deliver low value to both Medicare and commercial payers.

The National Business Group on Health last year commissioned Milliman's Pyenson and co-authors to evaluate 65 U.S. cities and determine whether examples of high hospital value exist and what characteristics they share. High value cities were defined as those whose hospitals deliver low cost per capita to both Medicare and commercial payers while producing positive margins. While the study found a number of cities that fall into this category, several others deliver high value to Medicare but charge significantly higher amounts to commercial payers. Even among the high value cities, the study found considerable variation in what are believed to be important cost drivers including wage levels, payer and hospital competition, geographic location, and the ratio of primary care to specialist physicians.

Helen Darling, President of the National Business Group on Health, requested the study last year after several communities had been singled out as providing exceptional value to Medicare and, thus, were important to understand and possibly emulate. During the health care reform discussions, there has been a focus on identifying communities in which Medicare costs are relatively low and quality high. Private payers have questioned whether this high value care for Medicare is shared with private payers, or if private payers, in effect, subsidize low cost for Medicare through higher payments.

"Given the high stakes involved and the important policy implications, we wanted to understand which cities and hospitals provide the best value for all payers, consumers and the community as a whole," said Darling. "Ultimately, the question we wanted to answer is whether cities that are high value for Medicare inpatient care also are high value for private payers, or do they look better because private payers were charged more to make up for hospitals' inpatient revenue shortfalls?"

The study, which examined hospital inpatient costs and utilization for Medicare and commercial payers in 65 cities, concluded that under a wide variety of circumstances, both scenarios are possible and, in fact, exist across the country. The authors note that their goal was not to identify all high, low or mixed value cities, but rather to demonstrate that they exist. A comprehensive study would reveal many more cities in each category, according to the authors.

The specific cities where hospitals provide high value to Medicare and commercial payers for inpatient care and are also profitable include:

Tucson, AZ Albuquerque, NM
Sarasota, FL Akron, OH
Honolulu, HI Medford, OR
Boise, ID Portland, OR
Portland, ME Pittsburgh, PA
Grand Rapids, MI Knoxville, TN
Asheville, NC Newport News, VA
Fargo, ND/Moorhead, MN Spokane, WA

"It's important to note that we also identified specific cities that demonstrate low Medicare inpatient costs but, relatively, very high commercial reimbursement," said Bruce Pyenson, a principal and consulting actuary at Milliman's New York office, and one of the study's co-authors. "These cities' data highlight the danger of using only Medicare data to identify high-value locales. In these cities, hospitals appear to meet their business objectives by charging private payers much more than Medicare."

Nine cities identified as high value to Medicare but charging much higher amounts to commercial payers include:

Fresno, CA Denver, CO
Modesto, CA Fort Wayne, IN
Sacramento, CA Reno, NV
San Francisco, CA Seattle, WA
San Jose, CA  

"As Congress and the President try to find solutions to the health care crisis we have to find ways to make the health industry more efficient. We can't just cover millions of more people without a laser-like focus on controlling costs, which Warren Buffett refers to as a tapeworm destroying our financial success," said Darling. "This research helps identify cities in which hospitals provide higher value for Medicare and for private payers, at least for inpatient care. It also confirms that some less-efficient hospitals generate profit by raising commercial payer costs, costs passed to consumers and employers as increased premiums. As new payment models are tested and studied to find models worth emulating, knowing which hospitals are successful due to high-quality efficient patient-care versus effective contracting alone is essential."

Comments from The Hospital Study's Advisory Group members:

Thomas Nolan, Ph.D., Senior Fellow, Institute for Healthcare Improvement, commented: "The value of health care in a region is mostly dependent on the ability of its health care providers to produce high quality care efficiently. This report is an important step towards a more comprehensive assessment of costs in a region."

Elliott S. Fisher, MD, MPH, Director of Population Health and Policy, The Dartmouth Institute, commented, "Research on the Medicare population has underscored the importance of reducing unnecessary hospital stays -- and this important study from NBGH confirms that communities that are able to care for Medicare patients with fewer hospitalizations are able to do the same for their under 65 population. But to slow the growth of spending, we also need to address the problem of prices."

Arnold Milstein, MD, Chief Physician, Mercer, and Medical Director, Pacific Business Group on Health, commented: "Before we initiate a national effort to replicate exemplary local health systems, let's be sure replication is warranted. In a woefully insufficient health care information environment, NBGH's pioneering effort to mobilize commercial and Medicare data is a major step forward."

About the National Business Group on Health

The National Business Group on Health is the nation's only non-profit, membership organization of large employers devoted exclusively to finding innovative and forward-thinking solutions to their most important health care and related benefits issues. The Business Group identifies and shares best practices in health benefits, disability, health and productivity, related paid time off and work/life balance issues. Business Group members provide health coverage for more than 50 million U.S. workers, retirees and their families. For more information, visit

About Milliman

Milliman is among the world's largest independent actuarial and consulting firms. Founded in 1947, the company currently has 52 offices worldwide. Milliman employs over 2,400 people with a professional staff of more than 1,100 qualified consultants and actuaries. The firm has consulting practices in healthcare, employee benefits, property & casualty insurance, life insurance and financial services. Milliman serves the full spectrum of business, financial, government, union, education and nonprofit organizations. For further information, visit

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