IOM Committee Releases Interim Report on Geographic Payments in Medicare

Because there are differences in practice patterns among doctors within a practice and hospitals within a hospital referral region (HRR), using a geographic value index, which would adjust payment to all providers within a defined region based on aggregate data measures of spending and quality, would unfairly punish low-cost providers in high-spending regions and unfairly reward high cost providers in low spending regions, according to an interim report by the Committee on Geographic Variation in Health Care Spending and Promotion of High-Value Care. The report observed that recent health reforms, which tie a decision maker’s payment to its actions, are a preferable method for inducing changes in care.


In 2009, the Quality Care Coalition, a group of U.S. House of Representatives members, asked HHS Secretary Kathleen Sebelius to sponsor two Institute of Medicine (IOM) studies on geographic payments in Medicare, independent of final health reform legislation. The first study evaluated the accuracy of geographic adjustment factors used for Medicare payment. For the second study, the IOM committee investigated geographic variation in health care spending and quality and analyzed Medicare payment policies that might encourage high-value care. To meet a deadline, the committee filed this interim report; the final report is due to be released this summer.

Clinical Decision Making

The report observed that whether a geographic index is an appropriate policy depends on whether modifications pursuant to the model effectively shift provider behavior toward greater efficiency without substantially diminishing health care outcomes. Because health care decision making generally occurs at the level of an individual practitioner or organization, and not at the geographic level, payments that target these decision makers are more likely to trigger change. The report concluded that a geographic index value, which treats everyone in the area the same, does not target an appropriate level of clinical decision making to affect change.

Payment Reforms

The report also concluded that payment reforms created by the Patient Protection and Affordable Care Act (P.L. 111-148), including value-based purchasing, accountable care organizations, and bundled payment systems, target decision makers instead of geographic areas. Although these reforms are relatively new, there is little evidence as to their effect on the value of care; however, tying a decision maker’s payment to its actions, as these reforms do, is a preferable method for inducing change in care, according to the report. Further, reforms that address overuse of post-acute care could have a substantial impact on health care efficiency, since home health and skilled nursing care are a major source of unexplained variation in Medicare spending.


The report noted that the literature on geographic variation suffers from a number of methodological and statistical limitations. For example, the Medicare data that the committee examined for the study excluded the Medicare Advantage population, and most studies exclude Part D spending. In addition, many variables of potential importance to understanding geographic variation in health care utilization, spending, and quality might not be measured accurately in claims data.