Applying a geographically based index to set Medicare reimbursements would reward low-performing healthcare providers in some areas and punish higher performers in other regions, according to preliminary observations from an Institute of Medicine committee
That's because decisions in healthcare come from healthcare organizations and individual practitioners, not from the geographic region where they're based.
“The notion is that incentives should be targeted at physicians, hospitals and delivery systems that are making decisions affecting clinical managements—that areas don't make those decisions,” said Joseph Newhouse, chairman of the committee that worked on the study and a professor of health and policy management at the Harvard School of Public Health.
Commissioned by HHS, the interim report on geographic variation includes only observations, while a full report expected in the mid-to-late summer will provide conclusions and recommendations. Given that Medicare spending per person varies greatly nationwide—the report noted that the program spends as much as 44% more in some regions than others—a geographic value index has been considered as a way to improve efficiency in healthcare by boosting payment rates in low-cost areas where the quality of care and health benefits are high, and lowering payments in high-cost areas where quality and benefits are low relative to their spending.
“The committee was asked to evaluate a geographical value index but not any particular index,” Alan Garber, vice chairman of the committee and professor of healthcare policy at Harvard Medical School, told Modern Healthcare. To do this, the committee examined the concept of such an index, which would be some type of multiplier for added payments for each unit of service, such as hospitalizations, physician services or post-acute care.
Garber emphasized the concept of unexplained variation, or the variation in expenditures that can't be explained by things like age, gender and health conditions. “If you ask where that is most substantial,” Garber said, referring to the unexplained variation, “that is post-acute care followed by hospital care.”
The committee's observations come at a time when federal lawmakers are wrestling with how to address entitlement reform as a way to sustain programs like Medicare and also reduce the nation's federal deficit. And while both Garber and Newhouse said the committee did not make recommendations in this interim report, Garber said the committee did observe that rewards for higher performance in patient care do achieve the objective of promoting higher value in general. And they also highlighted some payment-reform initiatives that the Patient Protection and Affordable Care Act created and commercial insurers and physician groups are already testing, such as accountable care organizations, bundled payments, value-based purchasing and pay-for-performance.
“Many of those, as you know, are in the early stages,” Newhouse said, “and it's hard to say anything at this point on how successful those initiatives will be.”