Summary

Health care spending varies across the country due to differences in the use and price of health care services. Understanding the reasons for utilization and price variation may contribute to developing methods to control health care spending. This report provides preliminary results from our work on geographic variations in health care spending and prices. Congress asked us to examine geographic variations in health care spending and prices in the Federal Employees Health Benefits Program (FEHBP). FEHBP is the health insurance program administered by the Office of Personnel Management (OPM) for federal civilian employees and retirees, which covered 8.5 million people in 2001. FEHBP contracts with private insurers to provide health benefits. It is the largest private insurance program in the United States. This report summarizes preliminary information provided to you at an interim briefing on July 21, 2004. The enclosed briefing slides highlight the results of our work comparing Milwaukee to other areas of the country. The objectives of the briefing were to (1) compare Milwaukee health care spending per enrollee, hospital inpatient prices, and physician prices with other metropolitan areas, and (2) examine factors identified by stakeholders in Milwaukee that may affect health care spending and prices.

Health care spending and prices in Milwaukee were high relative to the averages for metropolitan statistical areas (MSA) in our study, and preliminary analyses point to providers' leverage in negotiating prices with insurers as one of the contributing factors. Milwaukee ranked among the top 20 MSAs for spending per enrollee, inpatient prices, and physician prices. Some stakeholders asserted that high spending and prices were caused in part by the leverage exerted by provider networks in Milwaukee, which limited insurers' ability to control the prices they pay. This assertion was supported by our examination of indicators of the relative strength of providers and payers.