1 Surprising Reason Your State Could Be Paying More for Health Care

Think you're paying too much for health care in your state? You could be right. Some states report significantly higher health costs than others.

Exactly why this is the case often generates discussions about differences in cost of living and average medical salaries. However, a new study conducted by the National Bureau of Economic Research, or NBER, points to another reason for health care cost disparities. You'll probably be surprised by NBER's conclusion from this study.

Cowboys, comforters, and cost
The NBER researchers used patient and physician surveys along with Medicare data to analyze regional differences in spending. Those differences can be quite large. Price-adjusted-per-patient Medicare spending varies from below $7,000 in some areas to nearly $14,000 in others.

Interestingly, most of the expenditure variation isn't due to patients having different types of illnesses in different parts of the country. The variation didn't stem significantly from regional poverty levels, either.

NBER discovered that the single most important factor in accounting for differences in health care spending was physician beliefs that are not supported by clinical evidence. Yep -- how physicians think about treatments accounts for a whopping 36% of end-of-life spending and 17% of total U.S. health care spending.

Physicians responding to the NBER surveys were categorized into different groups. The NBER researchers classified those physicians who consistently recommended intensive care beyond established guidelines as "cowboys." Physicians who consistently recommended palliative care for patients with severe conditions were dubbed "comforters."

The study found that the more cowboys there were in sample data, the higher the spending levels were. Lower spending levels correlated with higher numbers of comforters.

Another highly predictive category of physicians was based on how frequently the doctors recommended follow-up visits compared to clinical guidelines. As you might expect, larger numbers of physicians in the high-frequency follow-up group corresponded with higher medical costs.

When the NBER analyzed data combining cowboys, comforters, and high-frequency follow-up as variables, it found that more than 60% of regional Medicare spending variation was explained. Several other factors, including patient preference for care, were determined to be insignificant.

Implications
Basically, the NBER study suggests that physicians who "follow their gut" rather than established clinical guidelines are driving health care costs higher. Geographic regions that have more of these physicians pay more than those that don't. Earlier studies have suggested similar that physicians' views that differ from clinical standards of care could play a big role in higher costs, but none has directly established the correlation between physician beliefs and Medicare spending.

What could this conclusion mean for the U.S. health care system? And, since we at The Motley Fool are always looking at things from an investing angle, what are the implications for individual investors?

Certainly, one study by itself won't result in radical changes. However, if further research supports the NBER findings, there could be a push to more stringently enforce clinical guidelines in how physicians treat patients.

UnitedHealth Group (NYSE: UNH  ) stands to be a beneficiary of any such efforts in a couple of ways. First, as the nation's largest insurer, the company would incur lower medical expenses (and thereby more profit) if regional spending differences were minimized. Second, UnitedHealth's Optum business segment could be a significant player in the arena of helping health care providers implement processes and systems that follow clinical guidelines.

Another potential winner is athenahealth (NASDAQ: ATHN  ) . The cloud-based physicians software company already incorporates clinical rules into its workflow. Fast-growing athenahealth also snagged the top ranking from health-care research firm KLAS in June for physicians' electronic medical record system usability, efficiency, and effectiveness.

Looking down the road a bit, IBM (NYSE: IBM  ) could reap rewards from any efforts to standardize how physicians treat patients. Big Blue plans to deploy its Watson technology to help clinical professionals diagnose and treat patients. Watson uses "natural language capabilities, hypothesis generation, and evidence-based learning" to assist in decision-making.

The ink on the NBER report has barely dried. It could be a while before the ramifications of the study's conclusions work their way through the circles that make decisions about health care reimbursement. However, my hunch is that we'll hear much more in the future about the importance of ensuring standard clinical protocols are followed by physicians. This should be a developing story that investors will want to follow closely.

While the NBER study could impact the future of health care, Obamacare is rewriting the rules for the health care industry now. In the process of doing so, it's creating massive opportunities for investors to get ridiculously rich. How? By investing in a handful of specific health care stocks. In this free report, our analysts walk you through these opportunities and the companies that are positioned to exploit them. The informational edge contained in it is invaluable, but can only be exploited profitably while the rest of the market remains in the dark. To access this free report instantly, simply click here now.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 29, 2013, at 1:06 PM, Freddbe wrote:

    Democrats take care of people and Republican take care of business and corporations. CPAC takes care of the Republicans and they get there funds from big business and corporations. The more you pay the more CPAC gets and donates. A system that doesn't not work for the people of this country.

  • Report this Comment On August 29, 2013, at 9:07 PM, bloftman wrote:

    Cowboy physicians who do not follow the guidelines of the central planners may be one of the cause of increased costs. Another cause is that our system is dominated by the third party payers of employer owned insurance, Medicare, and Medicaid.

    If we had a free market where Individuals would own their own catastrophic medical insurance policies and pay for most of their care out-of-pocket , we would see the costs drop. I also expect most patient would choose the “cowboy” physicians rather than those controlled by the third party payers.

    For further info, please go to: http://www.examiner.com/article/free-market-health-care

  • Report this Comment On August 31, 2013, at 8:51 AM, ConcernedZ3bra wrote:

    This article was a compelling revelation of the true problem with the quality of healthcare in America...the investors are determining how doctors do their job. As a parent of a child with a rare genetic disorder, I am thankful for what I guess would be deemed "Cowboy" physician who didn't stop trying to find out the cause of my child's severe pain over a 3 year span. From what I am reading, these investors would be standardizing the insurance to impede our doctors next decision on who we could see next or what medicine he should take that yet again is insufficient because it happens to be cheaper so our insurance investors make more money.

    When will we let doctors do their job correctly, what they were trained to do without someone who is more interested in the bottom dollar intervening. You tell your child of 6 that we can't make their pain suffering go away because insurance won't cover it. I dare you to look into those eyes and say " it's just better for the bottom line that we don't see your specialist". Shame on you Wall Street...

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