In a 2013 report, the Institute of Medicine (IOM) assessed the quality of care across geographic regions of the US based on Medicare reimbursements and the efficacy of a geographically based reimbursement index. In assessing differences in spending, they proposed two explanations for the stark variation. The “acceptable” reason was differences in the health status of a population. So, if a certain hospital was located in a neighborhood with a sick and old population, of course the amount of Medicare reimbursement payments per enrollee would be higher for that region. This means that even in the most efficient, ideal system, there would still be variation across geography. The “unacceptable” source of variation was a high volume of low quality care, which can be enticing for doctors in a fee-for-service dynamic. An example of inefficient, low quality care is duplication of medical tests. The success of a geographic value index would be measured by the extent to which it reduced this sort of inefficient overprovision of care.
To demonstrate just how much “unacceptable” variation there was across the United states, the IOM looked at a high spending region and low spending region, accounting for “acceptable” differences such as different population health. The ratio of the 90th percentile spending areas to 10th percentile spending areas in 2008 was 1.44 before adjusting for acceptable variation and 1.23 after adjusting for some acceptable variation, a significant drop. This indicated that differences in health spending across regions might not be as high as they originally seemed through figures such as the Dartmouth Atlas.
There are some downsides to a geographic value index and things to remain wary of in its application. As the IOM notes, a geographically based reimbursement index must adjust payments based on health outcomes as a result of clinical care, not the overall health of a patient because there are other factors at play in accessing the overall health of a patient that do not necessarily come as a result of the provision of health care. For example, it would be difficult to penalize a dermatologist in a certain region through Medicare reimbursement rates for having patients with high levels of heart disease. Another problem with the geographic value index is that there are differences in the quality of care within regions. If a certain practice that provided high quality care happened to be located next to a large hospital with highly inefficient care, the index would affect the reimbursement payments for both parties because they are deemed to be in the same geography. Furthermore, a decrease in payments for inefficient areas can cause an offsetting behavior in which physicians increase the volume treatment, in turn exacerbating inefficiency of treatments.
For a geographic value index to be most fair, there needs to be very little variation in behavior of the “sub-regions” whose reimbursement payments would be affected uniformly. The IOM found that within the highest spending regions, the highest spender spends at least 36% more than the lowest spender, a significant difference. These data is important in understanding that regional differences in health care tendencies are averages, not patterns. The IOM also found that even within practices, doctors had different prescription tendencies, with some prescribing more expensive medication and others choosing the cheaper counterparts. Thus, the geographic value index’s assumption that all physicians and hospitals act in a similar fashion is flawed.
The geographic value index is seemingly a watered down response to the fee-for-service system in its emphasis on quality over quantity. Its intentions of quality driven care are good, but the indexing parameters are imperfect. What’s more, it does not effectively eliminate the fee-for-service system, but rather it adjusts prices in response to the average outcomes of regions with diverse physician patterns – “It would reward low value providers in high level regions and punish high value providers in low value regions.” If a government directed, financed, and coordinated health care system continues, the most effective policy to monitor physician patterns would have to be at the individual level. Tracking patient outcomes as a result of a hospital visit would make doctors feel financially responsible for the care that they provide. If doctors were found to be exhibiting patterns of overspending without positive patient results, they would have to pay a fine to the government. The revenue from this fine could then be directed to more efficient doctors and hospitals as a reward for optimal care. There would be many oversight costs in this system, but it would create the appropriate incentives for doctors to treat patient care with more frugality.