MedPAC moves toward backing geographic pay reductions

The advisory board wants to end $500 million in annual Medicare spending used to prevent pay cuts to physicians deemed to practice in low-cost areas.

By Charles Fiegl amednews staff — Posted Oct. 12, 2012

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An advisory panel on Medicare payment adequacy has proposed that Congress allow the physician work component of a patient service to be adjusted throughout the country based on the doctor’s geographic location.

Evidence suggests that varying the work component — one of the factors that determines how much Medicare pays for a particular service — would not affect patient access, members of the Medicare Payment Advisory Commission said during an Oct. 4 hearing in Washington.

Medicare statute requires budget-neutral geographic adjustments to payments, increasing rates in areas considered to be high-cost and paying for it by reducing pay in low-cost areas. However, since 2004, Congress has approved temporary measures to prevent the positive geographic adjustments from being paid by other jurisdictions, thus leaving the pay boosts in place but negating the downward revisions. Doing so costs the government about $500 million a year.

All of the commissioners who spoke on the issue appeared to express approval for allowing the geographic payment floor established by lawmakers to expire. Several commissioners said the full adjustments should be allowed to take effect but that the current methodology behind the calculations needs better data to place more accurate values on how physician work demands vary from area to area.

Congress had tapped MedPAC to study how payments could be adjusted for geography more accurately and to issue a recommendation. The Institute of Medicine also has studied the topic and recommended changes to the system. The commission is moving to finalize its recommendations before the latest provision preventing negative geographic pay adjustments expires on Dec. 31. Commissioners are planning to vote in November.

“If we recommend an increase in Medicare expenditures above the current law baseline, I think we ought to do that based on evidence that we think that expenditure would improve access for Medicare beneficiaries, improve quality of care for Medicare beneficiaries or facilitate movement towards new payment systems that we think are important for the Medicare program,” said MedPAC Chair Glenn Hackbarth.

Hackbarth proposed that the work component of Medicare physician pay be adjusted geographically and that the adjustment reflects variations in what different markets pay physicians and other health professionals. In the meantime, Congress should allow the floor to expire and adjust pay under current law until the Centers for Medicare & Medicaid Services can develop a new adjuster to replace it, he said.

The current adjustment formula uses Bureau of Labor Statistics data to determine how much physicians in a particular area receive for their services — data that include reference salary information for other professionals, such as engineers. MedPAC could recommend using better data sources to reflect physician earnings more accurately. One such alternative proposal could utilize a cost-of-living index.

MedPAC researchers report little difference between utilization of Medicare services per beneficiary for high- and low-cost areas. However, physician work force supply tends to be higher in areas receiving positive geographic adjustments, said Kate Bloniarz, an analyst for the commission. MedPAC members said they favored more targeted initiatives to boost the numbers of physicians in shortage areas.

Commissioners appeared to agree that fees should be adjusted to reflect additional factors, such as cost of living. However, a systemwide geographic adjustment would have little impact on goals to improve quality and patient care in the program, and administration officials should not spend much time trying to perfect the adjustments, said Commissioner Rita Redberg, MD. She’s a cardiologist and professor of clinical medicine at the University of California at San Francisco.

“In the big picture and the long term, this is not a good use for CMS resources or our resources,” Dr. Redberg said.

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