Health Care Costs and Financing

Health care costs are lower in Minnesota than in other States due mostly to structural factors, not financial incentives

Previous studies have shown that health care costs in Minnesota are lower than in many other States. A recent study supported by the Agency for Healthcare Research and Quality (contract 290-00-0017) identified several possible reasons for this difference. Analysis of Minnesota medical group practices conducted during 2001 revealed that they had lower per-member, per-month costs due to better clinical support systems and use of mid-level providers rather than financial incentives, such as capitation (a fixed payment per person cared for, regardless of the type of service delivered, which provides an incentive to limit costly services).

In general, the Minnesota practices were far more advanced in the use of electronic-based information systems and in the use of clinical guidelines, physician profiling, and benchmarking programs than were practices nationally. On the other hand, 86 percent of the Minnesota practices had no revenue from any type of capitation. Their largest proportion of practice revenue was reported to come from some form of fee-for-service payment in which the health plans paid the practices for services rendered. Physician compensation in the group practices reflects the need to encourage both productivity and cost controls in this competitive managed care environment. Nearly half of physician compensation is based on productivity, but productivity often excludes revenue from other than physician work RVUs (relative value units, procedures per full-time equivalent physician).

Although only about 40 percent of the Minnesota practices had computer terminals at the patient care site, this was more than twice the national figure. Moreover, about 80 percent of the Minnesota practices used some benchmarking methods, and more than half used at least some clinical guidelines compared with only 20 percent of medical group practices nationally. The group practices in Minnesota have cultures that emphasize cost-effective medical care and, as a result, costs are lower, according to John Kralewski, Ph.D., of the University of Minnesota.

See "Managing patient care cost in Minnesota medical group practices," by Dr. Kralewski, Bryan Dowd, Ph.D., Janet Silversmith, M.A., and others, in the February 2004 Minnesota Medicine, pp. 48-54.

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