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Institute of Medicine Releases Phase II Report on Study of Geographic Adjustments in Medicare Payment

July 20, 2012—The Institute of Medicine (IOM) July 17 issued its Phase II report on Geographic Adjustments in Medicare Payment.  The report recommends that geographic adjustments should be used to ensure accuracy of payments to providers but not be used to make additional policy adjustments. The IOM committee also offers recommendations for improving access to primary care in medically underserved areas.

The report is the second part of a two-phase analysis sponsored by the Center for Medicare and Medicaid Services (CMS). Phase I, which was released in June 2011, focuses on the technical accuracy of the geographic adjustments. Phase II focuses on the implications of geographic adjustments on access, quality, and efficiency.
The Phase II report simulates the potential effect on Medicare payment rates should the recommendations from the Phase I report be implemented. Under the simulations, payment rates would increase or decrease less than 5 percent for 88 percent of hospitals with no particular type of hospital being affected disproportionately. For physicians, payments would increase or decrease less than 5 percent for 96 percent of payments.
The largest negative effect on payment rates would occur from eliminating policy adjustments such as state rural floors. The majority of redistributive payments would be from rural to urban and small urban to large urban areas, due to a change in payment areas. The committee notes that geographic payment adjustments do not appear to have an effect on improving access to primary care.

The committee reports that most Medicare beneficiaries have adequate access to primary care but offers six recommendations for improving access to primary care services in medically underserved areas:

  • Medicare should develop policies that address chronic primary care access problems;
  • Medicare should pay for services, such as telehealth, that can improve access;
  • Medicare should support policies that allow all qualified practitioners to practice to their full extent of their educational preparation;
  • Medicare should review policies that provide location-based payment adjustments;
  • Congress should allocate funding for an independent agency to collect and evaluate workforce data, such as the National Health Care Workforce Commission as established by the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152); and
  • Federal support should facilitate the independent external evaluations of programs intended to increase access to medically underserved populations.


Mary Patton Wheatley, M.S.
Director, Health Care Affairs
Telephone: 202-862-6297

Evan Collins, MHA
Specialist, Clinical Operations and Policy
Telephone: 202-828-0552


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Jason Kleinman
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