The payment of higher Medicare rates to physicians and hospitals in regions that have good health outcomes and lower costs, while reducing payment rates where there is lesser quality and higher costs will not drive individual providers to deliver care more efficiently reports the Institute of Medicine (IOM).
The IOM Committee on Geographic Variation in Health Care Spending and Promotion of High-Value Care's interim report for Congress, released Friday, explores how to reconcile regional variations in healthcare spending, use and quality. A final report is due this summer.
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"Areas don't make decisions. Physicians, hospitals and delivery systems make decisions that affect care. That's where one should target incentives," said Joseph Newhouse, committee chair and John D. MacArthur Professor of Health and Policy Management, Harvard School of Public Health, in a phone interview with Healthcare Finance News.
The committee has been considering the merits of using a geographically based value index to set Medicare reimbursements and to encourage more efficient healthcare delivery. But it found through studies that decisions about care are made at the provider level rather than regional level, and providers within regions do not spend consistently on care or routinely deliver the same quality of care.
As a result, using a geographically based value index would ultimately reward underperforming providers in some regions and penalize those achieving good outcomes at lower cost in other areas, an IOM press release said.
"I think what we'd like to do is reframe this debate toward trying to give incentives for high-value care to providers rather than to areas," Newhouse said.
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To be effective, payment reforms need to encourage behavioral changes at the point of healthcare decision making, such as through incentives that are targeted at clinical decision makers, including pay for performance, accountable care organizations and bundled payments. "I think we've started down that direction," he said.
Almost by definition, high-value regions have higher value, so that if one rewards high-value providers, then the high-value regions will benefit. "But what we show, I hope, is that there is a lot of variation within regions, even among hospitals and doctors, and that therefore just rewarding an area would benefit both presumptively high- and low-value providers," Newhouse said.
The amount that Medicare spends per person varies greatly across the country, as much as by 44 percent more in some regions than it does in others, even after adjusting for regional price differences in wages, rents and other factors, the report noted, and studies show that regions where Medicare spends more do not necessarily achieve better health outcomes or greater patient satisfaction.
The feasibility of a geographic value index would depend on whether individual providers behave similarly within defined regions so that all would be equally deserving of any geographically based increase or decrease in their payment levels, and whether altering payment rates based on regional measures of cost and quality is likely to spur more efficient care, the report said.
However, differences in the use of services and spending occur at every geographic level as well as between hospitals within regions and between providers within a single hospital or group practice because healthcare decisions are made by clinicians.
Even after adjusting for variables such as wages, rents and characteristics of Medicare patient populations, including age and health status, a significant amount of regional variation in Medicare payments remains unexplained, the committee said. Differences in Medicare patients' age, sex and health contribute, but they do not fully explain all the variation.
Looking at how much Medicare pays out for different categories of healthcare services, the committee observed that post-acute care, including the use of home health services, skilled nursing facilities, rehabilitation facilities, long-term care hospitals and hospices, accounts for a substantial amount of variation.
Much of the remaining differences in spending on services are attributable to inpatient care, with little stemming from other products or services such as prescription drugs, diagnostics, procedures and emergency department visits.
The magnitude of spending on post-acute care in some areas, particularly in Miami and Dade County, Fla., raises concern about potential fraud taking place there. Any amount of fraud would weaken the effectiveness of a geographic value index by reducing reimbursement to providers practicing legitimately. Altering the factors that spur overuse of post-acute care services could lead to greater healthcare efficiency, the report said.
The committee's observations are the result of review of published research and testimony at two public workshops as well as new statistical analyses conducted by six subcontractors and four papers commissioned from experts in these subjects.
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