On March 22, 2013, the Institute of Medicine Committee on Geographic Variation in Health Care Spending and Promotion of High-Value Care (IOM Committee) released an interim report analyzing a potential Medicare payment policy, the adoption of a geographically-based value index. The IOM Committee study was tasked in part with addressing “whether Medicare payments for physicians and hospitals should incorporate a value index that would modify provider payments based on geographic-area performance” related to cost and quality measures. The interim report does not contain conclusions and recommendations related to this task, but provides the IOM Committee’s preliminary observations regarding the potential impact of a geographically-based value index.

One such observation is that health care decision-making occurs at the individual practitioner or organizational level, such as hospitals or physician groups, and not at the geographic region level. As a result, according to the report, a geographic value index might not target an appropriate level of clinical decision-making to trigger behavioral change at the patient-provider level. The report suggests that payment reforms targeting decision-making units rather than geographic areas, such as value-based purchasing, ACOs, and bundled payments, may result in being more effective in improving the value of care.

The report also contains the observation that substantial variation exists at every geographic level. Moreover, hospital referral regions do not consistently rank high or low across quality measures, nor is there a consistent relationship between utilization and various quality measures. Based on these preliminary observations, the IOM Committee cautioned that a geographic value index could “reward low-value providers in high-value regions and punish high-value providers in low-value regions.”

Another observation in the report is that post-acute care, particularly home health and skilled nursing, is a “major source of unexplained variation in Medicare spending.”  Based on that observation, the interim report suggests that reforms addressing incentives to overuse post-acute care, as well as combating fraud in the post-acute arena, could greatly impact health care efficiency.

The IOM Committee interim report is available here. The final report is due Summer 2013.

Reporter, Jennifer S. Lewin, Atlanta, 404 572 3569, jlewin@kslaw.com.