In Geographic Adjustment in Medicare Payment, a nearly 250-page report to Congress and HHS, the IOM made a total of 11 recommendations in four areas: labor markets, hospital wage index, smoothing of labor markets and geographic practice cost indexes. For this study, the committee—led by Dr. Frank Sloan, professor of health policy and management and economics at Duke University—focused on practice costs, and it will address the other factors in a supplemental report this summer.
Another major recommendation was that a single set of payment areas be used for both hospitals and physicians. Currently, the geographic adjustment for hospitals uses one set of 441 markets, based on metropolitan statistical areas where people live, work and commute, while the adjustment for physician payment uses a different set of 89 payment areas to represent labor markets. Those include 55 large metropolitan areas and 34 statewide areas.
“It is a big recommendation,” said Dr. Atul Grover, chief advocacy officer for the Association of American Medical Colleges. “On the physician side, since there are only 89, you end up lumping entire states,” he said. “So what IOM is suggesting, we agree with: Move beyond that 89 localities and move to that 400 or so—it will give more refined data.”
Meanwhile, representatives of physician groups said they were glad with the report's recommendations on the geographic practice cost indexes, including a suggestion to include the full range of occupations employed in physicians' offices, and another that calls for a new source of information to obtain data on commercial office rent per square foot.
Dr. Karl Ulrich, president and CEO of Marshfield (Wis.) Clinic, said he found the report “refreshing” and was especially pleased with the IOM's recommendation to obtain new data on commercial office space rent. The Marshfield Clinic operates 55 sites in northern and central Wisconsin and has about 750 physicians.
According to the report, geographic differences in office rent are calculated based on the median rent for a two-bedroom apartment, using data from the U.S. Housing and Urban Development Department. The use of commercial office rent could improve accuracy, the report said, but a new source of data should be used because there are no available sources of commercial rent data that have the same geographic coverage as HUD data.
“Utilization of that kind of data are really groundbreaking changes going forward compared with the antiquated system” now in place, Ulrich said.
Meanwhile, a recommendation to include a full range of occupations in the geographic practice cost indexes calculation is “absolutely the right direction to take,” according to Anders Gilberg, vice president of public and private economic affairs at the Medical Group Management Association. “While some of the front-office physicians have been scaled back in the recent years, with the implementation of HIT, back-office computer professionals and other IT staff have become more prevalent,” Gilberg said.
Next spring, the IOM committee will release its final report, which will evaluate the effect of adjustment factors on the distribution of the healthcare workforce, quality of care, access to care and population health. That study also will analyze how these factors affect providers' ability to deliver high-quality care.