According to the report, the current system of geographic adjustment for hospitals uses 441 labor markets to define payment areas, and hospitals are classified according to their location in 365 metropolitan statistical areas with the balance of nonmetropolitan counties combined into “rest-of-state” areas. The geographic adjustment system for physician payment uses 89 payments areas, some of which include large metropolitan areas, while 34 are statewide with combinations of metropolitan and nonmetropolitan areas.
“The same labor market definition should be used for both the hospital wage index and the physician geographic adjustment factor,” the report concluded, adding that metropolitan statistical areas and statewide non-metropolitan statistical areas should serve as the basis for defining these labor markets.
Among its other recommendations, the IOM suggested that Congress revise the hospital wage index statute of the Social Security Act to allow the HHS secretary to use data from the Bureau of Labor Statistics to compute the hospital wage index.
The committee also suggested the use of all occupations as inputs in the hospital wage index, using a fixed national weight based on the hours of each occupation employed in hospitals nationwide.
Frank Sloan, chair of the IOM committee and director of the Center for Health Policy, Law and Management at Duke University, said in a news conference that a supplemental report this summer will further examine geographical practice cost indexes. Next spring, a final report will evaluate the effect of adjustment factors on the distribution of the healthcare workforce, quality of care, access to care and population health, as well as the effects of the adjustment factors on the ability of providers to provide high-value care.