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Impact of Socioeconomic Adjustment on Physicians’ Relative Cost of Care

Timbie, Justin W. PhD*; Hussey, Peter S. PhD*; Adams, John L. PhD; Ruder, Teague W. MA; Mehrotra, Ateev MD, MPH

doi: 10.1097/MLR.0b013e31828d1251
Original Articles

Background: Ongoing efforts to profile physicians on their relative cost of care have been criticized because they do not account for differences in patients’ socioeconomic status (SES). The importance of SES adjustment has not been explored in cost-profiling applications that measure costs using an episode of care framework.

Objectives: We assessed the relationship between SES and episode costs and the impact of adjusting for SES on physicians’ relative cost rankings.

Research design: We analyzed claims submitted to 3 Massachusetts commercial health plans during calendar years 2004 and 2005. We grouped patients’ care into episodes, attributed episodes to individual physicians, and standardized costs for price differences across plans. We accounted for differences in physicians’ case mix using indicators for episode type and a patient’s severity of illness. A patient’s SES was measured using an index of 6 indicators based on the zip code in which the patient lived. We estimated each physician’s case mix-adjusted average episode cost and percentile rankings with and without adjustment for SES.

Results: Patients in the lowest SES quintile had $80 higher unadjusted episode costs, on average, than patients in the highest quintile. Nearly 70% of the variation in a physician’s average episode cost was explained by case mix of their patients, whereas the contribution of SES was negligible. After adjustment for SES, only 1.1% of physicians changed relative cost rankings >2 percentiles.

Conclusions: Accounting for patients’ SES has little impact on physicians’ relative cost rankings within an episode cost framework.

Supplemental Digital Content is available in the text.

*RAND, Arlington, VA

Kaiser Permanente Center for Effectiveness and Safety Research, Oakland, CA

RAND, Pittsburgh, PA

Supplemental Digital Content is available for this article. Direct URL citations appear in the printed text and are provided in the HTML and PDF versions of this article on the journal's Website,

Supported by the Robert Wood Johnson Foundation (Grant No. 51860).

The authors declare no conflict of interest.

Reprints: Justin W. Timbie, PhD, RAND, 1200 South Hayes Street, Arlington, VA 22202. E-mail:

© 2013 Lippincott Williams & Wilkins, Inc.