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The American Journal of Managed Care July 2019
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What Are the Potential Savings From Steering Patients to Lower-Priced Providers? A Static Analysis
Sunita M. Desai, PhD; Laura A. Hatfield, PhD; Andrew L. Hicks, MS; Michael E. Chernew, PhD; Ateev Mehrotra, MD, MPH; and Anna D. Sinaiko, PhD, MPP
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What Are the Potential Savings From Steering Patients to Lower-Priced Providers? A Static Analysis

Sunita M. Desai, PhD; Laura A. Hatfield, PhD; Andrew L. Hicks, MS; Michael E. Chernew, PhD; Ateev Mehrotra, MD, MPH; and Anna D. Sinaiko, PhD, MPP
Steering patients who visit providers with above-median prices to their market’s median-priced provider would save 42%, 45%, and 15% of laboratory, imaging, and durable medical equipment spending, respectively.

Within-market price variation. We calculated 2 measures of price variation—coefficient of variation (CV) and interquartile ratio (IQR)—for each market–service combination. The CV is the SD divided by the mean price multiplied by 100, which provides a unitless measure of price dispersion. The IQR is the quotient of the 75th percentile price divided by the 25th percentile price. These measures are weighted by the volume of the service and market. For each service category, we report the median CV and IQR across all market–service combinations.

Market share analysis. For each service, a provider’s market share in that year was defined as the percentage of claims in a market billed by that provider. We assigned provider–service combinations to price deciles within their markets, which were designated by the patient’s 3-digit zip code of residence (eg, the lowest-priced providers are in the bottom decile; the providers with prices in the top 10% of the distribution are in the top decile). We report the share of claims billed by providers in each decile by service category.

Potential savings from shifting patients to lower-priced providers in their market. We analyzed the potential savings from switching patients from higher- to lower-priced providers and report results in 2 ways. Our main results report the estimated savings that accrue if all patients who received services from higher-than-median-priced providers instead received care at the provider with the median price in their market. We also simulated the savings from switching patients who received services from the highest-priced providers to successively lower-priced providers in small increments. Specifically, we report savings from switching patients from providers above the 95th percentile to the price at the 95th percentile, then from above the 90th percentile to the 90th percentile, continuing in 5% increments down to the lowest price in the market.

We present potential savings from these simulations in aggregate, as well as the distribution of savings across markets and services. For each service category, we report the 10 markets and services with the most and least estimated savings, as well as savings stratified by Northern, Central, and Southern California. Prior work has highlighted the high prices of care provided in HOPDs.13 To examine the contributions to potential savings from price variation within each setting (eg, shifting patients from higher- to lower-priced HOPDs and from higher- to lower-priced freestanding clinics), we simulated potential savings separately in HOPDs and freestanding providers. In secondary analyses, we also examined the potential savings from shifting patients visiting high-priced (above-median) HOPD providers to the median-priced provider in their market to capture potential savings from efforts that focused on steering patients away from expensive HOPD providers. Whether a service was rendered in a HOPD or freestanding clinic was determined by the place of service designation on each claim.

We conducted several sensitivity analyses. As noted previously, we defined smaller markets using 5-digit zip code, and we defined providers’ prices by the mean and modal allowed amount. We also repeated the analyses excluding laboratory tests, imaging services, and DME received on days when enrollees had other outpatient medical care. In these situations, clinicians who are part of health systems may have directed patients to receive the service in their facility, leaving little opportunity for the patient to choose a lower-priced provider.


Our sample included 697,381 enrollees living in 60 three-digit zip codes (markets) across California (Table 114). The average market had 28 laboratory test providers, 32 imaging providers, and 6 DME providers. Average quarterly outpatient and total nonpharmacy (inpatient and outpatient) spending was $778 and $1150, respectively. Laboratory tests, imaging, and DME constituted 10%, 14%, and 3%, respectively, of overall outpatient spending.

Within-Market Price Variation

Price dispersion relative to the mean within markets was greatest for laboratory tests (CV = 100%) and imaging (CV = 87%) and lower for DME (CV = 41%) (Table 2). The median ratio between the 75th and 25th percentile prices in a market was 2 for laboratory tests, 2 for imaging services, and 1 for DME claims. The extent of price dispersion varied across both services and markets (eAppendix Figure).

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