July 25—Differences in the use of post-acute services such as skilled nursing facilities and home health care are one of the main reasons for variation in Medicare spending, according to a report released this week by the Institute of Medicine (IOM). Variations in commercial spending are more likely tied to the difference in what hospitals and physicians charge for services, the report states.   

The IOM conducted a four-year research effort exploring geographic variation in healthcare spending and its underlying causes. The IOM indicates there are still many unknowns regarding geographic variation, and it suggests that any effort to reward physicians and hospitals based solely on geographic variation would be inherently unfair.

Variation in healthcare spending across geographic areas has always existed, but there has never been a definitive answer as to why. Congress has even considered rewarding providers in low-Medicare spending areas with increased payments while penalizing providers in high-Medicare spending areas. 

To improve value, the IOM recommends that the Centers for Medicare & Medicaid Services (CMS) take the following steps:

  • Continue to test payment reforms such as value-based purchasing, patient-centered medical homes, bundled payments, and accountable care organizations. “These reforms are directed at decision-making entities and pro¬vide incentives for health care providers to inte¬grate care delivery, coordinate care with other providers, and share data on service use and health outcomes in real time,” the report states. “CMS also should pilot programs that allow beneficiaries to share in the savings for higher-value care.”
  • Evaluate the impact of reforms on value and use the findings to make ongoing improvements in value-based payment models. “Congress should give CMS the flexibility to accelerate its transition from traditional Medicare to new pay¬ment models if evaluations demonstrate that these reforms improve care value,” the report states.
  • Collaborate with private insurers so that new pay¬ment models can be evaluated across payers.

Additionally, the IOM recommends that Congress encourage CMS to make Medicare and Medicaid data more acces¬sible for research purposes and provide CMS with resources to carry out this task.  

Publication Date: Thursday, July 25, 2013