Question

1. Consider the Dartmouth Atlas of health care costs.  The Dartmouth Atlas reveals cost variations within counties, cities, and even within hospitals.  This phenomenon is sometimes referred to as Small Area Variations (SAV).
   1. Discuss the potential causes of SAV.  Be sure to include the role of physician incentives, asymmetric and/or imperfect information, medical technology, hospitals, and anything else that you deem important.
   2. Suppose you are a policy maker charged with reducing SAV.  Design two potential policy solutions and explain why they would be successful.

Answer 1

a)

Small area variation analysis: Primary Care research

A research tool used by health service researchers

• Variation exists in the rates of hospitalization for pneumonia, chronic obstructive lung disease, hysterectomy, tonsillectomy, and, cholecystectomy. Sources of variation include access to care, quality of care delivered; random variation, patient demand for services.
• It describes how rates of how healthcare events, and, use vary over well-defined research areas.

Additional spending in high spending regions - buying services, that are essential and beneficial. Those in higher spending regions most likely to be admitted to hospitals, spend more time in the hospital, and, receive more discretionary tests. Excessive growth is driven by technology.

Medical spending growth is achievable, and, necessary:

• Developing better evidence on risks, and, benefits

• removing payment system to not reward volume, and, reward the value
• Better evidence on benefits, and, risks of common treatments
• reducing the patient-physician ratio

Dartmouth data compares expenditures, and, utilization across hospital referral regions.

b)