Ambulatory Practice Variation in Maryland: Implications for Medicaid Cost Management

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Ambulatory practice variation in Maryland: Implications for Medicaid cost management


Findings from analysis of Medicaid utilization and payments for the Maryland Medicaid Ait to Families with Dependent Children (AFDC) population suggest that Medicaid could save money by reducing the use of hospital clinics as a usual care source and increasing the use of community-based providers. These findings raised the question, "What would be the financial impact if it were possible to accomplish such a change?" and led to a series of simulations designed to answer this question. Using simulation modeling, assumptions regarding fee increases as well as provider and recipient behavior were varied to see how alternative scenarios would affect the "bottom line," e.g., savings or loss to the Medicaid program. In this article, we review our initial research and present the results of simulation modeling. we also discuss issues for consideration and descrive policy decisions made by the Maryland Medicaid program, based in part on these analyses.


Small-area variation in hospitalization rates has been well documented (Wennberg, 1984, 1987) and there is evidence that neither variation in the appropriateness of care (Chassin et al., 1987) nor in illness rates (Wennberg, 1987) explains all of these differences. Other factors, including characteristics of the providers and population, will have to be evaluated as potential sources of variation.

Previous studies have suggested that outpatient departments can represent a costly source of care for the Medicaid program (Gold, 1979 Lion and Altman, 1982 McDevitt and Dutton, 1989). Our efforts to extend this work among Maryland Medicaid providers found major differences in utilization and payments associated with different provide settings. Our research focuses on characteristics of provider settings and their contribution to variations in Medicaid utilization and cost for the Maryland AFDC population.

In Table 1, differences in utilization and payments per user per year by usual source of care for Maryland Medicaid users in the AFDC eligibility category are shown. The raw means in this table for total average annual payments per user show that individuals using outpatient departments as a usual source of care and persons for whom a usual source of care could not be determined ("undetermined") have the highest average annual costs per person when compared with people using other provider types. The total average annual payment for outpatient department users ($1,583) is more than double that for individuals using office-based physicians ($654). This high cost for outpatient department users is consistent with the high raw means for the ambulatory and inpatient components. Outpatient department users have the highest average payment per ambulatory visit ($77). This is more that double the average payment per ambulatory visit for office-based physician users ($34). In addition, outpatient users have the highest probability of having a hospital admission (24.0 percent compared with 9.0 percent for office-based physician users).

Analysis of Baltimore City AFDC users found that differences in patient case mix could explain much of the difference in utilization and cost to Medicaid associated with provider type. Findings from Baltimore City users suggest that case-mix adjustments would reduce the differences in Table 1 in total annual payments per user between outpatient departments and office-based physicians or community health centers by 40 to 50 percent, but that differences would remain statistically significant (p .001). Differences in the probability of an inpatient admission between outpatient users and users of office-based physician or community health centers would be reduced by nearly 50 percent but would also remain statistically significant (p .001) (Stuart, 1988 Stuart and Steinwachs, 1990). …