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IOM Calls for Medicare Reimbursement Formula Overhaul

Cheryl Clark, for HealthLeaders Media, June 3, 2011

Medicare needs to change the controversial way it uses geographic price variables to calculate physicians and hospital reimbursement in order to more accurately reflect the cost of providing care for 39 million beneficiaries, the Institute of Medicine recommended in a lengthy report released Wednesday.

The 17-person IOM committee set forth 11 recommendations for two sets of providers, hospitals and physicians, both of which could shift some of the $500 billion a year in Medicare spending from doctors and health systems in some parts of the country to those in others.

"There's a great deal of uncertainty and dissatisfaction with the methods that are employed. They're complicated and don't seem to work that well," said IOM president Harvey Fineberg. "This is about improving accuracy."

Asked how inaccurate the current pay system is, Frank Sloan, chairman of the 17-person committee that prepared the report, replied that it's a system that "reflects history.

"It reflects the floors that have been put into the system, the requests for exceptions and exceptional treatment on the part of individual institutions. And that kind of system at some point, built up over decades, is worthy of reexamination."

"If you came in from outer space and say this system, you would see that there are aspects of it that do not make sense."

In a nutshell, the committee is recommending that payment to hospitals be based on a wage index for all healthcare workers – from health IT experts to accountants and attorneys. Wage would be based on data collected by the Bureau of Labor Statistics, rather than on labor costs reported by hospitals.
 

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