Institute of Medicine

Board on Health Care Services

Committee on Geographic Adjustment Factors in Medicare Payment

Medicare is the largest health insurer in the United States, providing coverage for 39 million people aged 65 and older and 8 million people with disabilities, and reaching more than an estimated $500 billion in payments in 2010. Although Medicare is a national program, it adjusts fee-for-service payments according to the geographic location of a practice. While there is widespread agreement about the importance of providing accurate payments to providers, there is disagreement about how best to adjust payment based on geographic location. At the request of Congress and the Department of Health and Human Services (HHS), the Institute of Medicine (IOM) examined ways to improve the accuracy of data sources and methods used for making the geographic adjustments to payments. The IOM recommends an integrated approach that includes moving to a single source of wage and benefits data; changing to one set of payment areas; and expanding the range of occupations included in the index calculations. The first of two reports, Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy, assesses existing practices in regards to accuracy, criteria consistency, evidence for adjustment, sound rationale, transparency, and separate policy adjustments to reform the current payment system. Adopting the recommendations outlined in this report will mean a change in the way that the indexes are calculated, and will require a combination of legislative, rule-making, and administrative actions, as well as a period of public comment. Geographic Adjustment in Medicare Payment will inform the work of government agencies such as HHS, the Centers for Medicare and Medicaid Services, congressional members and staff, the health care industry, national professional organizations and state medical and nursing societies, and Medicare advocacy groups.

Phase I: Improving Accuracy

Geographic Adjustment in Medicare Payment

Medicare, the world's single largest health insurance program, covers more than 47 million Americans. Although it is a national program, it adjusts payments to hospitals and health care practitioners according to the geographic location in which they provide service, acknowledging that the cost of doing business varies around the country. Under the adjustment systems, payments in high-cost areas are increased relative to the national average, and payments in low-cost areas are reduced. In July 2010, the Department of Health and Human Services, which oversees Medicare, commissioned the IOM to conduct a two-part study to recommend corrections of inaccuracies and inequities in geographic adjustments to Medicare payments. The first report examined the data sources and methods used to adjust payments, and recommended a number of changes. Geographic Adjustment in Medicare Payment - Phase II:Implications for Access, Quality, and Efficiency applies the first report's recommendations in order to determine their potential effect on Medicare payments to hospitals and clinical practitioners. This report also offers recommendations to improve access to efficient and appropriate levels of care. Geographic Adjustment in Medicare Payment - Phase II:Implications for Access, Quality, and Efficiency expresses the importance of ensuring the availability of a sufficient health care workforce to serve all beneficiaries, regardless of where they live.

Committee on Geographic Adjustment Factors in Medicare Payment

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