IOM report targets accuracy of Medicare regional payments

A panel calls for new data and methods to set geographic adjustments to physician pay rates.

By Charles Fiegl — Posted June 13, 2011

Print  |   Email  |   Respond  |   Reprints  |   Like Facebook  |   Share Twitter  |   Tweet Linkedin

A committee studying Medicare payments concludes that the program should be using more accurate information when adjusting pay rates based on where physicians and hospitals are located.

A June report from the Institute of Medicine recommended changes to the methods the Centers for Medicare & Medicaid Services uses to pay doctors and facilities $500 billion annually. The report's recommendations include utilizing geographic health sector data from the Bureau of Labor Statistics, expanding wage data to account for all types of health workers in private practice, and using the same number of geographic markets for hospital and physician payments.

The report is the first of three planned by an IOM committee tasked with studying price variations caused by Medicare geographic adjustments. While questioning the accuracy of the current process, members of the panel stopped short of stating that current geographic adjustments are inaccurate or imprecise. The committee also would not say whether current methodologies favor large states over small states or physicians practicing in rural versus urban areas.

"We've heard from various stakeholders. And I recall two congressmen testifying, one from a rural area and one from an urban area, and they both felt they were disadvantaged," said committee member M. Roy Wilson, MD, University of Colorado chancellor emeritus.

Geographic adjustments designed to reflect the differing costs of providing care between different regions of the country are a factor in determining the final rate that a given physician receives for a particular service. The current system was built over decades, and now is the time to examine if its accuracy can be improved, said Frank Sloan, a professor of health policy and management at Duke University in Durham, N.C., who led the committee.

"If you just came in from outer space and said here's the system -- there are aspects of it that don't make sense," Sloan said.

For instance, there are 441 geographic payment areas nationwide for hospitals under Part A and just 89 pay areas for physicians under Part B. The Part B adjustments consist of 55 metropolitan areas and 34 statewide areas. The latter pay the same rates to physicians practicing in urban and rural settings. Sloan pointed to his home state of North Carolina as an example where pay rates don't differentiate the likely higher costs of running a practice in Charlotte versus an office elsewhere in the state.

But simply upping the number of Part B geographic areas to 441 from 89 would be a challenge, Sloan said. Panel members doubt enough labor data exist to provide accurate adjustments.

The committee instead has recommended that the Bureau of Labor Statistics gain access to confidential CMS physician billing data. The data would be used to develop more accurate adjustments across the country.

New data must account for commercial office space costs, Sloan said. Currently, figures from the Dept. of Housing and Urban Development on residential rents are used for this component of the doctor payment formula.

"The real objective here is to accurately reflect the differences in the input prices that providers face," said committee member Stephen Zuckerman, a senior fellow with the Urban Institute in Washington, D.C.

The health system reform law called for an investigation of geographic adjustments under Medicare. Health and Human Services Secretary Kathleen Sebelius and Congress then sought the IOM's recommendations on how to improve the system.

The second of three planned reports will focus on geographic payments as they relate to quality of care, access to physician services and work-force issues. That report is scheduled for release this summer.

State medical society reaction to the first installment was mixed.

The California Medical Assn. has advocated for geographic adjustment reforms for at least a decade, said Elizabeth McNeil, the association's vice president of federal government relations. Recommendations in the report validated CMA concerns, she said. For instance, the current system lumps such metro areas as San Diego and Sacramento with rural areas. The report recommends separating these urban and rural areas.

"It is setting up a consistent, rational, data-driven process that will more accurately reimburse doctors," McNeil said.

Iowa Medical Society Executive Vice President Mike Abrams called the release of the study anti-climactic. Abrams wrote on his society's website that the report left unanswered questions and lacked detail to explain what the recommendations would mean for individual doctors.

"If they begin to subdivide Iowa into a dozen or more payment localities, what impact will that have on your ability to recruit?" Abrams wrote. "What if you get better reimbursement in Cedar Rapids than they get in Dubuque or Ames for an eye surgery? Who is going to call that 'progress?' "

Back to top


How the government computes Medicare rates

The Medicare fee-for-service payment formula for physician services has four basic components.

To determine the payment rate for a particular service, the Centers for Medicare & Medicaid services first takes the relative value unit for the physician work and multiplies it by the geographic price cost index, or GPCI, for physician work. Then CMS multiplies the practice expense RVU by the practice expense GPCI. The third step is to multiply the physician's liability insurance (listed as MP in the formula) RVU by the liability insurance GPCI. Those three numbers are added together.

Finally, that entire sum is multiplied by a set conversion factor to determine a dollar amount.

GPCI values typically range from 1 to 1.5 for physician work, 0.9 to 1.5 for practice expense, and 0.4 to 3 for liability, based on estimated costs of practicing medicine in that physician's local area or state.

Here is the entire formula:

[(Work RVU x Work GPCI) + (Practice Expense RVU x PE GPCI) + (Malpractice RVU x MP GPCI)] x Conversion Factor = Fee-for-service Payment ($).

Back to top

External links

Medicare's physician fee schedule look-up application (link)

Back to top



Read story

Confronting bias against obese patients

Medical educators are starting to raise awareness about how weight-related stigma can impair patient-physician communication and the treatment of obesity. Read story

Read story


American Medical News is ceasing publication after 55 years of serving physicians by keeping them informed of their rapidly changing profession. Read story

Read story

Policing medical practice employees after work

Doctors can try to regulate staff actions outside the office, but they must watch what they try to stamp out and how they do it. Read story

Read story

Diabetes prevention: Set on a course for lifestyle change

The YMCA's evidence-based program is helping prediabetic patients eat right, get active and lose weight. Read story

Read story

Medicaid's muddled preventive care picture

The health system reform law promises no-cost coverage of a lengthy list of screenings and other prevention services, but some beneficiaries still might miss out. Read story

Read story

How to get tax breaks for your medical practice

Federal, state and local governments offer doctors incentives because practices are recognized as economic engines. But physicians must know how and where to find them. Read story

Read story

Advance pay ACOs: A down payment on Medicare's future

Accountable care organizations that pay doctors up-front bring practice improvements, but it's unclear yet if program actuaries will see a return on investment. Read story

Read story

Physician liability: Your team, your legal risk

When health care team members drop the ball, it's often doctors who end up in court. How can physicians improve such care and avoid risks? Read story

  • Stay informed
  • Twitter
  • Facebook
  • RSS
  • LinkedIn