Geographic Adjustment in Medicare Payment, Phase II: Implications for Access, Quality, and Efficiency
Medicare, the world’s single largest health insurance program, covers more than 47 million Americans, including 39 million people age 65 and older and 8 million people with disabilities. Although Medicare is a national program, it adjusts payments to hospitals and health care practitioners according to the geographic location in which they provide service, acknowledging that the cost of doing business varies around the country. Under the adjustment systems, payments in high-cost areas are increased relative to the national average, and payments in low-cost areas are reduced.
In July 2010, the Department of Health and Human Services (HHS), which oversees Medicare, commissioned the Institute of Medicine (IOM) to conduct a two-part study to recommend corrections of inaccuracies and inequities in geographic adjustments to Medicare payments. The IOM study committee issued Geographic Adjustment in Medicare Payment, Phase I: Improving Accuracy in May 2011 (with a second edition released in September 2011). The report examined the data sources and methods used to adjust payments, and it recommended a number of changes, including using the same geographic boundaries and payment areas for hospitals and health care practitioners; using different data sets for computing the compensation of clinical and administrative hospital staff and those at office-based sites; and expanding the types of occupations used to make the geographic adjustments. This latter change was recommended so that, for example, the full range of occupations employed in physicians’ offices would be included in calculating the geographic adjustment, rather than a few select occupations.
The committee’s latest report, Geographic Adjustment in Medicare Payment, Phase II: Implications for Access, Quality, and Efficiency, applies the first report’s recommendations in order to determine their potential effect on Medicare payments to hospitals and clinical practitioners. The report also offers recommendations to improve access to efficient and appropriate levels of care. In addition, the committee notes the importance of ensuring the availability of a sufficient health care workforce to serve all beneficiaries, regardless of where they live.
Geographic Adjustments Important, But Not Enough
Through a series of statistical simulations, the committee found that if its Phase I recommendations were adopted, 88 percent of Medicare discharges from hospitals and 96 percent of physician billings would change by less than 5 percent on average. From a broader perspective, however, geographic adjustments now are—and in the future will remain—a relatively small part of the Medicare payment system and only should be used to improve payment accuracy, the committee writes. Further, the committee concludes that geographic adjustment of Medicare payments is not an appropriate approach for achieving such national policy goals as changing the composition and distribution of health care providers. Instead, geographic variations in the distribution of physicians, nurses, and physician assistants should be addressed through other means, as should local shortages of providers that create access problems for beneficiaries.
Improving Access to Health Care
The committee finds that Medicare beneficiaries generally have good access to care—defined as services that are readily available and that yield the most favorable outcomes possible. However, geographic pockets remain in which access to care is more limited and where beneficiaries may have difficulty finding physicians who accept Medicare patients. Many of these pockets are in medically underserved rural and metropolitan areas and include disproportionate numbers of racially and ethnically diverse beneficiaries.
Because primary care is the foundation of an effective health care system, it is critical to focus on improving patients’ access to this care. The committee identifies a number of ways, other than adjusting payments, to improve the distribution of health care providers. Current Medicare payment policies—in particular, the fee-for-service payment system—may influence the availability of primary care services, particularly in underserved areas. There is evidence that fee-forservice payments have encouraged growth in the volume and complexity of services delivered and have contributed to widening income differences between primary care and specialty practitioners. Such payment policies may encourage physicians in training to choose specialization over primary care. The Medicare program should develop and apply policies that promote access to primary care services in locations that present persistent problems to beneficiaries. The committee notes the importance of reconsidering the structure of feefor- service payments in light of their likely effect on geographic variations in both the supply and type of practitioners.