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Second Opinion

Learn about policy issues important to medical schools and teaching hospitals, with Executive Vice President Atul Grover, M.D., Ph.D.

Washington Highlights

IOM Committee on Geographic Variation in Health Care Spending Releases Final Report

July 26, 2013—The Institute of Medicine (IOM) committee established to study geographic variation in health care spending and utilization July 24 released a final report titled Variation in Health Care Spending: Target Decision Making, Not Geography.  The IOM report was commissioned as part of a written agreement between the administration and congressional members of the Quality Care Coalition and included in the Affordable Care Act (ACA, P.L. 111-142 and P.L. 111-152) [see Washington Highlights, Jan. 28, 2011].

The report confirms the existence and persistence of geographic variation in health care spending and utilization, but finds it is difficult to explain the variation even after proper risk adjustment.  The committee also concludes that the spending variation is not related to quality of care, but that “variation in total Medicare spending across geographic areas is driven largely by variation in the utilization of post-acute care services, and to a lesser extent by variation in the utilization of acute care services.” 

The report states that if there were no variation in post-acute care spending in hospital referral regions (HRRs), “variation in total Medicare spending across HRRs would fall by 73 percent.”

Addressing the question of whether Medicare payments for physician and hospital services should incorporate a value index that would modify the payments based on geographic area performance, the committee notes that “health care decision making generally occurs at the level of the individual practitioner or organization (e.g., hospital or physician group), not at the level of a geographic region.  Therefore, a geographically based value index is unlikely to promote more efficient behaviors among individual providers and thus is unlikely to improve the overall value of health care.”

On the potential value index, the committee ultimately recommends, “Congress should not adopt a geographically based value index for Medicare.  Because geographic units are not where most health care decisions are made, a geographic value index would be a poorly targeted mechanism for encouraging value improvement. Adjusting payments geographically, based on any aggregate or composite measure of spending or quality, would unfairly reward low-value providers in high value regions and punish high-value providers in low-value regions.”

Contact:

Len Marquez
Director, Government Relations
Telephone: 202-862-6281
Email: lmarquez@aamc.org

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Jason Kleinman
Sr. Legislative Analyst, Govt. Relations
Telephone: 202-903-0806
Email: jkleinman@aamc.org