IOM wants map redrawn on Medicare doctor pay

Recommendations from a study of adjustments made to physician pay rates based on geographical location would turn 89 pay regions into 441 smaller areas.

By Charles Fiegl amednews staff — Posted Aug. 6, 2012

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Breaking up large Medicare geographic physician payment areas into smaller sections would produce higher pay rates for doctors in urban areas and lower pay for those in rural settings, according to an Institute of Medicine committee, but program officials are not likely to follow the advice.

The IOM panel concluded a review of geographic adjustments to physician payments in the Medicare program by releasing its second report on the subject July 16. The committee had called on the Centers for Medicare & Medicaid Services to break up its large payment jurisdictions into nearly five times as many smaller regions to reflect more accurately the costs of practicing medicine. The second report shows how the recommendations would impact Medicare rates.

The health system reform law called on the Dept. of Health and Human Services to evaluate variations in Medicare rates across the country. HHS had tapped the IOM to study the issue.

But so far, CMS has indicated that it will not expand the number of pay locales to 441 from 89, which includes 34 statewide jurisdictions, based on the committee’s work. A Medicare contractor had found that physicians in many rural areas would see substantial pay decreases as high-cost counties received their own payment areas, the agency stated in the proposed 2013 Medicare physician fee schedule.

Changes in pay rates would shift between -5% and 5% for 96% of the counties across the country, according to the IOM report. Outside of that group, the highest reductions would be in Alaska, where rates would decrease by 18.8%, the committee said. Frontier states of Montana, Nevada, North Dakota, South Dakota and Wyoming also would see rates drop between 0.6% and 5.5%. Federal law mandates that physicians practicing in Alaska and the frontier states be paid at higher rates.

“While the committee is not opposed to the idea of targeting special payments or bonuses to create incentives to improve the supply of primary care practitioners, it has taken a position against making special adjustments available based solely on geographic location rather than demonstrated need,” the IOM report states.

The largest increase under the IOM plan would be a 12% boost to rates in Jefferson County, W.Va.

State medical societies and associations applauded the IOM committee’s work to address physician shortages in rural and urban areas, but organizations representing physicians offered differing opinions of the report’s advice for revising geographic adjustments.

The adjustment for the work component of physician services uses data from seven proxy professions, such as attorneys, instead of specific wage data for physicians. The adjustment ignores the economic principle of supply and demand in an area, said Michael Kitchell, MD, past president of the Iowa Medical Society.

Facilities and practices, for instance, often pay more to hire doctors in small towns where there are shortages, said Dr. Kitchell, board president of the McFarland Clinic in Ames, Iowa. “In Ames, an orthopedic surgeon won’t take less than pay in New York or California.”

Physicians in California, meanwhile, have urged the Medicare agency to adopt the IOM panel’s recommendations. The state has a large payment area that includes physicians practicing in rural and urban settings that are paid the same rates. The result is some doctors being underpaid while others are overpaid, said Elizabeth McNeil, vice president of federal government relations for the California Medical Assn.

Breaking up payment areas “will result in much more accurate payments reflecting the true costs in these areas,” she said.

Increasing the number of payment areas would be an administrative challenge for the agency, CMS said. However, Medicare uses metropolitan statistical areas to help determine hospital payments, said Stephen Zuckerman, PhD, a committee member and senior fellow at the Health Policy Center of the Urban Institute in Washington. The complexity of adjusting physician payments based on the recommendations would be no greater than the current process for setting hospital rates.

“MSAs are far larger than ZIP codes, and CMS is already adjusting physician payment by ZIP code in order to do the health professional shortage area adjustments,” Zuckerman said, referencing additional money that the program pays to doctors and others in shortage areas.

Overall, Medicare beneficiaries have good access to care, but the fee-for-service system has led to shortages of both primary care and specialty physicians in rural and underserved areas, the IOM committee observed. Bonuses to physicians may not be sufficient to address limitations to the system. Dr. Kitchell and McNeil said they support recommendations aimed at improving access to physician services.

In this area, the committee recommended that Medicare:

  • Develop and apply policies that promote access to primary care services in areas with physician shortages.
  • Pay for services, particularly telehealth technologies, to improve access to physician care in underserved rural and urban areas.
  • Support policies that allow all qualified practitioners to practice to the full extent of their educational preparation.
  • Re-examine location-based adjustments for certain hospitals and modify them based on effectiveness.

The committee also called on Congress to fund a commission that conducts ongoing evaluations of work force distribution, supply and scope of practice. The federal government should facilitate independent evaluations of ongoing work force issues to ensure access to health programs, it said.

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How IOM advice would lower or raise Medicare pay

About 12% of Medicare services are provided in rural counties, while the rest are provided in metropolitan settings, according to an Institute of Medicine report. An IOM committee recommended changes to how the Centers for Medicare & Medicaid Services adjusts Medicare physician payments by geographic area. The report shows how the recommendations would affect pay by region and includes projections of what would happen if certain statutory payment floors were excluded.

RegionIOM vs. CMS policyIOM vs. CMS policy
w/o floors
Metropolitan total0.04%0.09%
New England0.64%0.64%
South Atlantic-0.33%-0.33%
East North Central0.13%0.13%
East South Central0.01%0.01%
West North Central0.1%0.51%
West South Central-0.08%-0.08%
Nonmetropolitan total-0.3%-0.13%
New England0.57%0.57%
South Atlantic-0.41%-0.41%
East North Central0.02%0.02%
East South Central-0.4%-0.4%
West North Central-0.44%0.11%
West South Central-0.3%-0.3%

Source: “Physician Geographic Adjustment Factor Tables” Institute of Medicine Committee on Geographic Adjustment Factors in Medicare Payment, July 17 (link)

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