Using a geographic value index to adjust payment based on aggregate measures of spending and quality would unfairly punish low-cost providers in high-spending regions; unfairly reward high-cost providers in low-spending regions; and not improve care, according to an interim report by the Institute of Medicine (IOM).

The report, ""Geographic Variation in Health Care Spending and Promotion of High-Value Care,"" is part of a study mandated by Congress in response to the 2009 fight between urban and rural states over regional spending in Medicare payments. The final report will be published this summer. The IOM study was part of a negotiated deal led by the California Medical Association (CMA) during the federal health reform debate. At that time, CMA spoke against the Medicare value index as proposed, saying that the approach would reduce doctors’ pay based on performance measures beyond their control, such as local costs (rent and nurse wages) and the health status of patients.

Some members of Congress had proposed a value-index based on the Dartmouth Atlas studies, which would have rewarded physicians spending less than the national average per Medicare beneficiary and cut payments to physicians spending more than the national average. This proposal would have reduced Medicare payments to California physicians by more than 15 percent, using the Dartmouth methodology.

CMA successfully argued against those payment cuts, and Congress ordered IOM to study the issue and make recommendations.

CMA testified before IOM on several occasions, telling the committee that while the Dartmouth Atlas studies show big variations in Medicare spending region to region, they do not adequately weight for other crucial factors that account for these differences, such as costs to practice medicine in different regions and differences in patients' income levels, ethnicities and health histories.

Once you accurately assess risk and cost factors unique to each region Medicare spending does not differ as much region to region. According to the new IOM report, initial observations show Medicare cost variations are not consistent for a given region, and differences are seen to exist among different hospitals within a single region or among different physicians within a group practice.

These data “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 report stated. IOM will produce a final report for Congress this summer that will make the committee’s conclusions official and include additional findings based on private health insurance spending.

Although Medicare doesn’t currently (but they will in 2015) alter physician pay based on regional differences in spending, it does make adjustments based on differences in the costs associated with providing medical care. In areas where average office rents, staff salaries, equipment costs and other expenses are higher, Medicare pays practices higher rates for the same services. In a separate report in 2011, IOM recommended that Congress draft a new Medicare map for geographic pay adjustments to physicians that it said would reflect these practice costs more accurately.

CMA has argued that Medicare payments should be based on individual and physician group data, not general physician behavior in a region.

Contact: Elizabeth McNeil, (800) 786-4262 or emcneil@cmadocs.org.