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IOM: Target inefficient Medicare doctors, not regions

An Institute of Medicine panel finds that geography itself is not responsible for high cost growth in certain areas.

By Charles Fiegl — Posted Aug. 5, 2013

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Congress should not adopt a Medicare value index that would adjust physicians' payments based on whether they practice in high- or low-spending areas, an Institute of Medicine committee concluded after studying Medicare, Medicaid and private insurer cost variations for patient services across the nation.

A study on the factors leading to differences in consumption of health services in the U.S. found that utilization rates are determined by the physician or hospital and not by the region of the country, states the July report, “Variation in Health Care Spending: Target Decision Making, Not Geography.” There are defined differences across geographic areas, but efficient and inefficient doctors and facilities can be found anywhere. Adjusting pay by a whole region would fail to target low performance or reward high-quality care, the committee said.

“Provider payments based on regional area performance would reward inefficient providers in low-cost regions and punish more efficient providers in high-cost regions,” the report stated.

The committee had been tasked by Congress to evaluate geographic variation in health spending in the U.S. and make recommendations for changes to the Medicare payment system. It was asked for the most recent report to address whether a value index should adjust payments to physicians and hospitals based on geographic performance. In 2011 and 2012, the IOM had released two reports on geographic adjustments in Medicare and recommended changes to those adjusters to account for regional variations in the costs to physicians of providing care.

What causes differences in health spending has been disputed by health economists and policy experts. The researchers behind the Dartmouth Atlas of Healthcare, first developed in 1973, are well-known for pointing to inefficiencies and waste leading to an estimated 30% more spending in high-cost areas. Where a patient receives his or her care matters, wrote Elliott Fisher, MD, MPH, co-director of the Dartmouth Atlas, and Jonathan Skinner, PhD, an economics professor at Dartmouth College, in a July 24 blog post on the journal Health Affairs website. They said several local factors, such as the supply of health care services and technologies, influence health spending.

“The rationale for a geographic focus on health care reform is strong: The factors that determine population health are largely local, rooted in the environmental, social, economic and behavioral determinants of health,” they wrote.

The Dartmouth professors faulted the IOM report for casting doubt on efforts to improve quality by targeting inefficient areas of the country, such as McAllen, Texas, which was profiled in a 2009 New Yorker article by Atul Gawande, MD, a professor of surgery at Harvard Medical School. However, Dr. Fisher and Skinner agreed with the five recommendations from the IOM committee. Some lawmakers have argued that inefficiencies in Medicare can be cut by 30% through lowering pay and eliminating wasteful spending in high-spending areas.

Postacute care seen as culprit

The committee report says the variations are real, but it disputes the role of where the care is delivered as a factor in spending. Differences in Medicare spending are driven by patient health status and care received after hospitalization through home health services, skilled nursing facilities, rehabilitation centers, long-term hospitals and hospices, said committee chair Joseph Newhouse, PhD, a Harvard health policy and management professor. These services accounted for 73% of the regional variation found in Medicare spending.

“Essentially, the action in terms of variation is in postacute care,” he said.

In contrast, postacute care does not have a great effect on private health spending rates, because many more elderly patients with Medicare coverage use the services compared with Americans younger than 65 with insurance through their employers. Variation in spending on patients with private coverage is driven by price markups negotiated with insurance companies, the committee said.

The Centers for Medicare & Medicaid Services has begun to address variations in spending by pilot-testing new payment models, such as accountable care organizations and patient-centered medical homes. These demonstrations offer physicians the chance to share savings for restraining cost growth and can penalize groups linked to excessive spending on patient services.

The committee favored this targeted approach because efficient and inefficient physicians can be found within the same market and, at times, within the same practice, Newhouse said.

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ADDITIONAL INFORMATION

5 IOM suggestions to reduce Medicare waste

The Institute of Medicine recommended that Congress and the Centers for Medicare & Medicaid Services address geographic variations in health spending by rewarding physicians and hospitals for keeping costs low through incentives for high-quality care. The IOM recommended that:

  1. CMS collaborate with private insurers to analyze spending data, as well as clinical and behavioral health outcomes, compare payments and quality of care, and evaluate value-based payment models across payers.
  2. Congress not adopt a geographically based value index for Medicare.
  3. CMS continue to test payment reforms that promote the clinical and financial integration of health care delivery systems.
  4. CMS conduct ongoing evaluations of the impact of new reforms on value of and access to care.
  5. Congress give CMS the flexibility to accelerate the transition from traditional Medicare to new payment models if evaluations of those reforms demonstrate increased value.

Source: “Variation in Health Care Spending: Target Decision Making, Not Geography,” Institute of Medicine, July (link)

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Highest- and lowest-spending Medicare regions

An IOM committee studying health spending variation evaluated 306 hospital referral regions by total monthly adjusted per capita spending differences from the national mean. The study analyzed Medicare data from 1992 to 2010 and showed postacute care driving high spending on beneficiaries. Here are monthly average per capita spending differences from the national average for the highest- and lowest-spending areas.

Highest areas Total difference Acute care Postacute care
Miami $435-$10$350
McAllen, Texas $266-$23$255
Monroe, La. $229$8$179
Houston $189$23$120
Alexandria, La. $180$41$134
Lowest areas Total difference Acute care Postacute care
Rochester, N.Y. -$174-$43-$79
Stockton, Calif. -$172-$41-$64
Sacramento, Calif. -$171-$52-$69
Buffalo, N.Y. -$166-$46-$57
Bronx, N.Y. -$166-$38-$89

Source: “Variation in Health Care Spending: Target Decision Making, Not Geography,” Institute of Medicine, July (link)

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External links

“Making Sense Of Geographic Variations In Health Care: The New IOM Report,” Elliott Fisher, MD, and Jonathan Skinner, PhD, Health Affairs Blog, July 24 (link)

“Variation in Health Care Spending: Target Decision Making, Not Geography,” Institute of Medicine, July (link)

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