Is Improving the Accuracy of Medicare Payments Just About Geography?

The Institute of Medicine (IOM) says yes.  According to the release of Phase II of a recent report, the IOM used a series of statistical simulations and analyses to conclude that the recommendations to adjust geographic areas, if adopted by the Medicare program, would improve the technical accuracy of payments, and these payments would increase or decrease by less than 5 percent on average for the majority of hospitals and most physicians. The IOM maintains that these adjustments, however, are not optimal tools which can be used to tackle larger national policy goals such as improving access to care in medically underserved areas.

Currently, Medicare payments are adjusted based on geography, so that regional variations in wages, rents, and other costs incurred by hospitals and individual health care practitioners may be accounted for. These geographic adjustments must be budget neutral per Federal requirements, which means that any increase in the amount paid to one hospital or practitioner must be offset by a decrease to others. In its previous report under Phase I of the study, the committee originally recommended changes to the data sources and methods used to calculate payment adjustments to achieve greater accuracy.

By using the new geographic adjustments, IOM suggests providers will experience anywhere from a 5 percent increase to a 5 percent decrease in payment amounts, and while that might seem negligible, it could actually make “significant differences to providers and organizations striving to provide high-value health care.”  IOM’s statistical simulations revealed that its committee’s proposed new approach using data from the Bureau of Labor Statistics would “yield generally higher relative hospital wages in rural areas than the current approach using Medicare data.” From analyzing the data, IOM found that the changes in practitioner payments would result in an overall payment reduction of just under 3 percent to health professionals in nonmetropolitan counties, but that for professionals practicing in metropolitan areas, they would experience an aggregate increase of less than half of 1 percent.

Given the way this falls, many are concerned that health professionals will decide where to locate based on where the salaries would be greater, thereby contributing even further to regional differences in the quality and availability of health care. The IOM report maintains, though, that given the relatively modest payment changes that would occur in many regions and given that geographic adjustments are only one factor in Medicare payments, revising these calculations may not have a significant overall impact on the distribution of providers and on improving care access and quality.

Currently, most Medicare beneficiaries have good access to health care, however, there is significantly less choice and there are more limitations in both medically underserved rural areas as well as urban areas where there is a disproportionately high number of racial and ethnic groups concentrated in a single location. There are ways to increase access to care than by hoping to sway provider location with geographic payment adjustments. The IOM committee maintains that, for example, “Medicare should support policies that enable all qualified health professionals to practice to the full extent of their education and training.”  It found that the supply of primary care services in underserved areas could even be increased if state licensing and credentialing laws consistently allowed a broader scope of practice for a complete range of professionals, such as nurse practitioners and physician assistants.  Telemedicine was also noted in the report as a means of enabling clinicians to reach more patients in underserved areas.

“The exercise of applying the recommendations from our Phase I report confirmed that using the data sources and methods we proposed would improve the accuracy of Medicare payments,” said committee chair Frank Sloan, J. Alexander McMahon Professor of Health Policy and Management and Professor of Economics, Duke University, Durham, N.C.  “Payment accuracy is important, but geographic adjustments are not the optimal way to achieve larger goals, such as ensuring access to clinicians or reducing disparities in care.  Such objectives should be addressed through other means.”