Role of prices in driving the variation in spending across medical groups

Abstract Objective To understand the relative role of prices versus utilization in the variation in total spending per patient across medical groups. Data Sources We conducted a cross‐sectional analysis of medical claims for commercially insured adults from a large national insurer in 2018. Study Design After assigning patients to a medical group based on primary care visits in 2018, we calculated total medical spending for each patient in that year. Total spending included care provided by clinicians within the medical group and care provided by other providers, including hospitals. It did not include drug spending. We estimated the case mix adjusted spending per patient for each medical group. Within each market, we categorized medical groups into quartiles based on the group's spending per patient. To decompose spending variation into price versus utilization, we compared spending differences between highest and lowest quartile medical groups under two scenarios: (1) using actual prices (2) using a standardized price (same price used for a given service across the nation). Principal Findings In total, 3,921,736 patients were assigned to 7284 medical groups. Per‐patient spending in the highest quartile of spending medical groups was $1813 higher than per‐patient spending in the lowest spending quartile of medical groups (50% higher relative spending). This overall difference was primarily driven by differences in inpatient care, imaging, and specialty care. In the scenario where we used standardized prices, the difference in spending between medical groups in the top and bottom quartiles decreased to $1425, implying that 79% of the $1813 difference in spending between the top and bottom quartile groups is explained by utilization and the remaining 21% by prices. The likely explanation for the modest impact of prices is that patients cared for by a given medical group receive care across a wide range of providers. Conclusions Prices explained a modest fraction of the differences in spending between medical groups.