Late News: Beyond geography

Policymakers and healthcare economists have observed and been troubled by significant variations in what Medicare pays for healthcare in different parts of the country.

The Institute of Medicine convened a committee of experts to tackle the issue, and their preliminary report suggests that applying a geographic index to Medicare payments would have perverse results. The approach would reward low-performing healthcare providers in some areas and punish high performers in other regions, according to preliminary observations from the 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.

The interim report on geographic variation includes only observations; a full report expected in mid-to-late summer will provide conclusions and recommendations. The report, paid for by HHS, noted that Medicare 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 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 idea of unexplained variation, or the variation in expenditures that can't be explained by things such as age, gender and health conditions. “If you ask where that is most substantial,” Garber said, “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 such as Medicare and also reduce the federal deficit. And while 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.