Is it that simple? Perhaps health care spending really does reflect health differences. A recent study from the journal Medical Care Research and Review indicates health care spending tracks closely with the health status of local populations.

Prior studies based their results on cost of living and various regional adjustments but never health status. The new study explains that health differences around the country account for 75%-85% of cost variations. “People really are sicker in some parts of the country.” said Dr. Patrick Romano, one of the authors of the study.  The Dartmouth Institute for Health Policy and Clinical Practice has long asserted that variations in regional spending are due to the aggressive practices of doctors and high rates of diagnosis in certain areas. The new research contests this by examining hip fractures, head injuries and heart attacks, in which there is little discretion in diagnosis. The geographic variations in spending for these conditions remained consistent with conditions that allow doctors leniency in diagnosis. According to this new data, cutting or placing spending caps on doctors and hospitals in higher spending areas may be detrimental. Some areas spend more money per beneficiary because…the people are sicker.

So, it’s not really that simple. But health status may account for more of the spending gap than we previously thought.

The full study is available by subscription to SAGE journals or for individual purchase here:

With national health care costs rising 5.1% in 2013, double the rate of inflation, how can anyone keep up?

It’s a hot topic that leaders of organizations nationwide are addressing with growing urgency. Keeping costs low, maintaining a healthy workforce, and avoiding the looming 2018 excise tax are all on the agenda for the employer.

In the Towers Watson 2013 survey on employer purchasing health care, one thing is clear, some companies save, others are on their way, and still others miss the mark entirely. But not all hope is lost, as 25% of organizations have managed to keep their health care costs roughly in line with inflation (growth of 2.2% annually).  So, what separates this 25% (the best performers) from the rest? Well, a handful of things:

They’re Already Working on Avoiding the Excise Tax: It comes into effect in a mere five years, so the best performers have started thinking about the implications of maintaining, discarding, or transforming their high cost plans.

They Pay Attention to Public Exchanges: They pay close attention to the role public exchanges might play in coverings pre-65 retirees, part-timers who work 30 or more hours a week, and lower paid employees eligible for subsidies. The public exchanges that open in 2014 may provide benefits to both employers and employees alike, with guaranteed coverage at a likely lower cost.

They are Considering Total Replacement ABHP: An ABHP (Account Based Health Plan) is a plan with a deductible offered alongside a personal account that can be used to pay a portion of the medical expenses not paid by the plan. They often include decision making tools and provider transparency that better help employees manage their care. The best performers have highly effective ABHPs that align with a comprehensive health management strategy that lead to total replacement.

They Implement Employee Engagement, Education, and Communication Tools: They improve employee health with approaches like games, classes, competitions, discussion, social media activities, and better information on health care and cost that are useful in promoting healthy lifestyles.

They Utilize Biometric and Achievement Standards Initiatives: Financial incentives for employees maintaining healthy BMI and cholesterol levels have proven effective for organizations with low health care costs. They extend the incentive program to spouses to encourage healthy living in all facets of life.

They Require Accountability and Vendor Partnerships:  They obligate vendors to share information about care and costs with their employees and implement performance based contracts with vendors that set goals.

They Understand Pharmacy Drug Costs: Specialty drugs often have a hefty impact on the overall health expenses of an organization, and specialty drug costs are expected to double in the next three to five years. Best performers understand their total pharmacy cost and explore new methods of addressing this rapidly growing area such as utilization management, site-of-care optimization, specialty pharmacy networks and formulary management.

They Implement New Delivery Models and Treatment Settings: They use on site health care clinics that provide a cheaper alternative to expensive emergency room and doctor visits. Telemedicine allows their employees to receive health care from remote locations using mobile technologies and are especially cost effective for non-urgent matters.

They View Their Health Plans in the Context of Total Rewards: Rising health care costs can stand in the way of bonuses, higher base salaries, and total rewards. Best performers provide transparency that engages their employees and helps them understand the impact of high health costs in relation to their total rewards package.

Under the burden of rising costs and the transformations of health care reform, it’s all about change, communication, education, transparency, and the implementation of new programs for companies looking to save.