GRAND JUNCTION, Colo. — As part of his push for the Affordable Care Act in 2009, President Barack Obama came to laud this community as a model of better, cheaper health care.
"You're getting better results while wasting less money," he told the crowd. His visit followed similar praise from television broadcasts, a documentary and a much-read New Yorker article.
All of the attention stemmed from academic work showing that Grand Junction spent far less money on Medicare treatments — with no apparent detriment to people's health. The lesson seemed obvious: If the rest of the country became more like Grand Junction, this nation's notoriously high medical costs would fall.
But a new study casts doubt on that seemingly obvious idea.
The research looked not only at Medicare but also at a huge new database drawn from private insurance plans — the sorts used by most Americans for health care. And it shows that places that spend less on Medicare do not necessarily spend less on health care overall. Grand Junction is one of the costliest health care markets in the country for the privately insured despite its low spending on Medicare.
Health care researchers who have seen the new findings say they are likely to force a rethinking of some conventional wisdom about health care. In particular, they cast doubt on encouraging mergers among hospitals, as the 2010 health care law did.
Larger, integrated hospital systems — like those in Grand Junction — can often spend less in Medicare by avoiding duplicative treatments. But those systems also tend to set higher prices in private markets, because they face relatively little local competition.
"Price has been ignored in public policy," said Dr. Robert Berenson, a fellow at the Urban Institute, and a former vice chairman of the Medicare Payment Advisory Commission, which recommends policies to Congress. "That has been counterproductive."
Just as in Grand Junction, the researchers found high private spending in Rochester, Minnesota, and La Crosse, Wisconsin, two other places that spent relatively little on Medicare.
But the researchers found that spending in one system does not predict spending in another. Some of the areas with the most cost-effective Medicare providers also have lower-cost private health care — but just as many places with relatively low Medicare costs have high private insurance spending.
The prices insurance companies pay for medical care are a major factor in determining which markets are expensive for private insurance and which are more moderate. Consider a knee replacement, a common procedure for Americans older than 50. Private health insurers negotiate separate prices for those operations with every hospital in their network. Medicare, by contrast, sets relatively standard rates for knee replacements around the country, with only slight adjustments for local conditions.
The prices paid by private insurers vary widely. The lowest price in the study for the simplest type of knee replacement was $3,298. The highest was $55,825.
In Medicare, regional differences in spending are driven mostly by the amount of health care patients receive, not price per service. Researchers at Dartmouth Medical School have studied these differences extensively, creating an influential online map of Medicare spending known as the Dartmouth Atlas of Health Care. Places with lots of health care fraud, say, or wasteful care are expensive without making their patients healthier. Others, like Grand Junction, have historically done a good job of keeping patients healthy without giving them a lot of medical treatment.
Those successes were why the community has been so studied and praised. Local doctors banded together decades ago to form big group practices, which grew skilled at communicating about what local patients did and did not need. One big hospital offered a full suite of medical care, and it worked to help patients plan for the end of their lives.
Policymakers who worked on the Affordable Care Act have sought to emulate those best practices, by rewarding doctors and hospitals for working together to take care of patients holistically.
The Dartmouth researchers testified before Congress when the Affordable Care Act was being written, saying that any policy that made the high-spending places more like the low-spending ones could make health care cheaper and of higher quality. (Since then, some critics of the Dartmouth research have said it failed to account for factors outside the medical system that might drive use of doctors and hospitals. Others have questioned the focus on reducing all health care spending, as opposed to the wasteful kind.)
The new research found that, in general, places that offered patients fewer treatments in Medicare also used fewer medical treatments for privately insured patients. That means that efforts to eliminate wasteful care can save money in both systems.
But the high prices sometimes charged to private insurers matter even more.
"The reason why health insurance for the privately insured is expensive is because the prices from hospitals with a lot of market power are higher," said Zack Cooper, an assistant professor of economics and health policy at Yale University, and the paper's lead author.
Several prominent researchers who read the paper said they had become convinced that policymakers needed to do more to address the high prices charged by some health care providers.
Many of the changes pioneered by the Affordable Care Act were devised to reduce wasteful medical care, but few have been directly concerned about price.
Jonathan Skinner, a health economist who works on the Dartmouth Atlas, said that there were still lessons to be learned from places like Grand Junction, but he acknowledged that the new work showed the limitations of studying Medicare in isolation.
"This idea that if the entire country turned into Grand Junction, that we'd suddenly save 20 percent on health spending, maybe that's not totally true," he said. "Prices are a real problem."
Martin Gaynor, a health economist at Carnegie Mellon University and another of the authors of the paper, has spent many years studying how market competition influences the cost and quality of health care. He says the new data is strong evidence that the federal government needs to enforce antitrust laws vigorously to prevent health care markets from becoming monopolies.
Other experts say more aggressive price regulation may be necessary in markets that have monopoly hospitals. Berenson, at the Urban Institute, suggested policymakers look to Maryland, where a government board sets standard prices for hospital services.
The paper, which is scheduled to be released by the National Bureau of Economic Research this month, may also help identify some new models for health researchers to study. While there are many markets that are expensive for one system and inexpensive in the other, the researchers found some, including Dubuque, Iowa; Honolulu; and Rochester, New York, that were inexpensive across the board.
While previous studies have noted a mismatch between private and public health care spending, the large size of the new data set makes the new analysis more powerful and reliable than previous studies of private insurance claims, experts said.
"I think the authors have gotten the best data," said Dr. Mark McClellan, a former head of the federal Centers for Medicare and Medicaid Services and now at the Brookings Institution.
The new data includes nearly every claim made by employer health plans sold by UnitedHealthCare, Aetna and Cigna, and represents about 14 percent of all people in the United States. In 2011, the three insurance companies formed an organization to pool their data, called the Health Care Cost Institute, which shared the data with the researchers.
Notably absent from the study is any data from Blue Cross Blue Shield plans around the country. The Blue plans are the largest in many communities, and it is possible their absence might change the results slightly. Cooper and his co-authors did some checks to make sure that their results were not distorted by places where the Health Care Cost Institute insurers had a small fraction of the market, and they were reassured by the results.
Six years after the president's visit, residents here say they were puzzled how the community had become a national model.
Mike Stahl, chief executive of the social services agency Hilltop, and one of the largest employers in the area, said he had been proud when he attended Obama's speech. Yet his own company's health insurance costs had been high and rising for years.
"We were kind of surprised at that," he said. "If we're the best in the nation, how bad is the rest of the nation?"
Stahl and others in Grand Junction have since learned they were right. A recent state law required insurance companies to submit most of their spending records to a central database. The Colorado All Payer Claims Database shows results similar to the academic findings. Grand Junction's county, Mesa, is substantially more expensive than the norm for private insurance.
"It's something we've had to acknowledge here," said Dr. Mike Pramenko, a family physician at Primary Care Partners, a large physicians' group. The doctors in the practice banded together in the late 1990s, and used their size to negotiate better payment rates from insurers than its members could have obtained alone.
But now he says he has been teaming with business leaders, a regional insurance company and others to try to help the town live up to its reputation. Some large employers have started working closely with a smaller hospital in town that offers lower prices than the large one that dominates the market.
"We want to be able to say, hey, we're addressing this. Bring your business here," Pramenko said.