Care Transformation Center Blog

What are the top avoidable cost opportunities in pediatrics?

by Amanda Berra

That's the question a member from a children's hospital recently asked us, and we thought we'd share our answer with you.

By looking at data from Crimson Population Risk Management, we’ve identified the top 10 cost savings opportunities for the pediatric population—and a few areas where you should actually spend more to improve health and cut costs down the line.

Estimated top 10 cost-savings opportunities

The analysis shared here draws on Milliman benchmarks of per-member, per-month (PMPM) spending in "well managed" versus "loosely managed" plans. The deltas between well- and loosely-managed cost benchmarks highlight areas where improvement in utilization patterns might make the greatest difference to total cost.

Specifically, this is a pediatric Medicaid model population of about 11,000 lives. Please see the end of the post for further model details and caveats.

Our observations

1. Probably not surprising, but the top opportunity is inpatient/other newborn, the category for premature births or non-routine prenatal care. This accounts for 60% of total avoidable costs for the entire inpatient category. Here, well-managed populations do a better job of preventing these cases from happening at all through investments in prenatal care.

2. Just like in adult populations, prescription drugs is the number two opportunity. However, the root cause is different in the pediatric population. The variance here stemmed more from overutilization (i.e., overprescribing) than higher costs per dose, which is the greater driver of overspending in the adult population.

3. Emergency department spending ranked much higher than we typically see in adult populations and is even higher when professional costs are aggregated. Ambulance costs also appeared in top 10—suggesting both ED services and ambulance services are both over-utilized in this population.

4. Office-administered drugs encompass specialty medication, which is on the rise for all populations. We were unsurprised at seeing this as an opportunity because there are known best practices to better manage this spending from the payer perspective (e.g., better management at home and through the pharmacy benefit versus accessing drugs in the hospital).

Where you should spend more for pediatric populations

Not all differences between well-managed and loosely managed populations result in positive deltas, as avoidable cost analysis can also reveal key opportunities to invest more in certain categories. In this case, well-managed populations spend more on immunizations and preventive care.

Additional details on our analysis and caveats

  • The analysis represents a normally distributed Medicaid pediatric population in the Mid-Atlantic region.
  • The aggregation levels of the categories are important. This model used the standard Milliman aggregations, however some service categories are more “rolled-up” than others, which could bring them closer to the top.
  • A hallmark of Medicaid population is “lack of utilization”, so the PMPMs overall are smaller than in Medicare/Commercial populations and, more importantly, the magnitude of the deltas are also smaller (the total delta here is only about $45 PMPM).
  • The greatest value of the deltas is directional—i.e., highlighting which are the greatest opportunities, and how large they are relative to one another—versus actually estimating dollar savings.

More on avoidable costs

Every provider needs to focus on reducing avoidable costs—even if risk-based reimbursement contracts are not on the horizon. Learn what you need to know in our research briefing, Primer on Avoidable Costs, and watch our experts present the practices members are raving about.