Pitt Faculty Lend Expertise to Institute of Medicine for Report That Could Influence How Medicare Pays Providers

By Cyndy McGrath and Allison Hydzik

Adjusting Medicare payments to clinicians and hospitals on the basis of geographic regions would not give providers the right incentive to improve the efficiency of care, according to an interim report issued by the Institute of Medicine (IOM), an independent, nonprofit organization that provides health advice to decision makers.

The IOM committee is engaged in an ongoing, congressionally mandated study of regional variations in health care spending, use and the benefits of adopting a geographic value index. A value index would raise payment rates in low-cost regions where the quality of care and health benefits are high and decrease payments in high-cost areas where the quality and benefits are low relative to their spending. 

“Extensive analysis by our subcontractors, review of the literature, and interpretation by the committee revealed that if we want to provide high-quality care at lower cost, we need to provide incentives to those who make decisions – that is the doctors, hospitals and health care systems – rather than broadly at the geographic area,” said Sally Morton, Ph.D., chair of the Department of Biostatistics at Pitt Public Health and member of the IOM Committee on Geographic Variation in Health Care Spending and Promotion of High-Value Care. 

Medicare spending varies greatly across the country, even after adjusting for regional price differences.  Studies indicate that regions where Medicare spends more do not consistently report better health outcomes or greater patient satisfaction.   However, committee members noted that using a geographically based value index to set reimbursements could reward low-performing providers in high-performing regions and penalize high-performing providers in low-performing regions.

“The effectiveness of payment reforms in reducing overutilization while maintaining access to high-quality care depends on the effectiveness of targeting. We found that there was substantial local variation in health care utilization and spending within broad regions,” said Yuting Zhang, Ph.D., an associate professor of health economics at Pitt Public Health and the author of one of the subcontractor reports for the IOM committee.

“Our analysis suggests that reimbursement policy at the regional level may be too crudely targeted to promote the best use of health care resources,” said Dr. Zhang, the lead author for the study published last November in the New England Journal of Medicine. The IOM committee commissioned this study and another study, also led by Dr. Zhang, on the variation of medication adherence in heart failure, which was recently published in JAMA Internal Medicine.

“In the U.S., regions don’t have decision-making authority,” said Amber Barnato, M.D., Pitt School of Medicine and IOM committee member.  “That’s not true in other countries, like Canada and England, where budgets are managed regionally. In those places regional budget caps are used to equitably distribute money across the country, leaving the regional decision makers to determine how to pay the providers within their region. The closest organizational equivalent we have in the U.S. for fee-for-service Medicare is an accountable care organization – and those are very new.”

The IOM committee expects to release its final report this summer, which will include further analysis and conclusions.