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IOM: Geographic Value Index Won't Fix Variation

 |  By cclark@healthleadersmedia.com  
   March 25, 2013

Variation in healthcare spending is so deeply embedded, even within 3,426 hospital service areas and within physician practices, the imposition of a payment index to discourage high spending would punish those who deliver low-cost, high-value care.

That's the conclusion from the Institute of Medicine's Committee on Geographic Variation in Health Care Spending interim report, one in a series contracted by the Centers for Medicare & Medicaid Services. CMS asked the 20-person IOM committee to recommend how Medicare Parts A, B, and C payments should include a geographic value index depending on spending and value in those regions.

"These preliminary observations suggest that a geographic value index would reward low-value providers in high-value regions and punish high-value providers in low-value regions," the committee said.

The issue is a critical one, because according to one report from the Dartmouth Atlas, "Medicare spending would drop by as much as 29% if practices of low-cost, high-quality regions were adopted nationwide, significantly improving healthcare for Medicare beneficiaries."

The IOM report noted that because of this, "some policy makers believe that Medicare should adjust hospital and physician reimbursement rates based on regional performance to encourage more uniform healthcare system performance for Medicare beneficiaries across hospital markets."

But that proposal has problems. The report said those disagreeing with it say that it would "conflate" two issues:

1. That some beneficiaries have a true and acceptable need for more care because of demographic characteristics and poorer health status, and

2. That some providers and beneficiaries tend to overuse low-value services, duplicate many others, and not follow Medicare standards in designing treatment regimens.

"It is not clear that any existing methodology can adequately disentangle acceptable and unacceptable variation," the committee wrote.

One issue that seems to both define and confuse the controversy over variation in cost and quality is that of fraud, the report says.

"Differences in practice patterns explain some variation in home health, the literature suggests that large deviations from the national average in spending and utilization among nearby areas may be an indication of fraud," the report says.

"In fact, the U.S. Office of the Inspector General (OIG) identified certain geographic areas in Florida, Texas, Louisiana, Illinois, New York, and Michigan as high risk for Medicare fraud."  

For durable medical equipment, for example, "Miami-Dade County is a clear outlier, with per-capital spending substantially greater than that of other nearby areas," and also accounted for more home health outlier payments in 2008 than the rest of the nation combined. Some 67% of home health areas that received outlier payments greater than $1 million were located in Miami-Dade, the report said.

The report made five key observations:

  1. That healthcare decision making occurs at the individual practitioner or organizational level, such as within hospitals or physician groups, not at a geographic region level.
  2. Substantial variation in spending and utilization exists within progressively smaller units of analysis.
  3. Quality across conditions and treatments varies widely within hospital referral regions; utilization across conditions is moderately correlated within hospital referral regions.
  4. Although a non-trivial amount of geographic variation can be explained by specific demographic and, potentially, health status variables, a substantial amount of variation remains unexplained.
  5. Hospital Referral Region-level quality is not consistently related to spending or utilization.

Variation is even high within a 20-group physician practice, the report said.

For gastroenterologists within Blue Cross Blue Shield of Massachusetts, "there is almost as much variation in the use of upper gastrointestinal (GI) endoscopy for patients with gastroesophageal reflux disorder seen by a gastroenterologist [a major driver of spending in that specialty] among 20 physicians within a single practice…as exists for all gastroenterologists in the state."

The committee report suggested that if behavior change among practitioners and organizations is desired to reduce variation and incent higher quality care, "payments that target these actors are more likely to trigger behavioral change, because providers will be held directly accountable for the value of healthcare services delivered."

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