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Medicare Spending Rates Based on Regional Cost Variations Unlikely to Improve Health Care

Congress should reject ‘geographic value index,’ report says (July 24)

A “geographic value index” that would tie Medicare payment rates to the health benefits and costs of health services in particular regions of the country should not be adopted by Congress, according to a new congressionally mandated report from the Institute of Medicine.

The committee that wrote the report concluded that decisions about health care generally are made at the level of the physician or organization, such as a hospital, not at the regional level. Because individual physician performance varies, sometimes even within a single practice group, an index based on regions is unlikely to encourage more efficient behavior among individual providers, and therefore is unlikely to improve the overall value of health care.

The committee examined the differences in spending at a variety of levels progressively smaller than geographic regions, such as hospital referral regions, hospital service areas, hospitals, and individual providers. Spending varies greatly across all these levels, and providers even at a small level do not practice the same way or perform similarly. Consequently, a geographic value index would reward low-value providers for practicing in areas that are on average high-value, and would punish high-value providers in low-value regions. As a result, area-level performance calculations would likely mischaracterize the actual value of services delivered by many providers and hospitals, resulting in unfair payments and inappropriate incentives, the report says.

To improve care, payment reforms need to create incentives for behavioral change by decision makers, whether they are at the level of individual providers, hospitals, health care systems, or stakeholder collaborative, according to the report. The committee recommended that the Centers for Medicare & Medicaid Services (CMS) continue to test Medicare payment reforms that incentivize the clinical and financial integration of health care delivery systems to encourage coordination of care among individual providers; real-time sharing of data and tracking of service use and health outcomes; receipt and distribution of provider payments; and assumption of risk managing their populations’ care continuum.

CMS should also evaluate the effects of test payment reforms on health care quality by measuring Medicare spending and beneficiaries’ clinical health outcomes, and use the results to improve the payment models, the report says. If these evaluations demonstrate increased quality, Congress should give CMS the flexibility to accelerate the adoption of the new Medicare payment models.

Source: Institute of Medicine; July 24, 2013.

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