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Doubts Raised About Cutting Medicare Pay In High-Spending Areas

Posted: March 22, 2013

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An influential panel panned an idea to pay hospitals and doctors less under Medicare if they happen to be in regions that are heavy users of medical services. The approach has been popular with some in Congress.

Whose wallet would get pinched if Medicare payments were cut in areas where service levels run high?

Whose wallet would get pinched if Medicare payments were cut in areas where service levels run high?

Doctors and hospital administrators in parts of the country that are heavy Medicare spenders can relax their grips on their prescription pads and billing computers.

An influential panel on Friday panned the idea raised in Congress to pay them less for Medicare services if their regions are heavy users of medical services.

The idea is an outgrowth of decades of research into why Medicare spends more per beneficiary in some places such as New York City, Florida and McAllen, Texas, and significantly less in parts of Minnesota and Wisconsin.

Much of the spending — 20 to 30 percent by some estimates — can't be explained by the age or health of residents, leading some analysts to surmise the extra spending is wasteful.

At the request of members of Congress from lower spending areas, Secretary of Health and Human Services Kathleen Sebelius in 2010 asked the Institute of Medicine to look into the issue.

While not overtly giving advice to lawmakers, the panel's interim report identified many downsides to adjusting Medicare payments to hospitals, doctors and other providers based on region. Such a practice, it suggested, "would likely mischaracterize the actual value of services" and result "in unfair payments" to physicians and institutions that were careful in using Medicare services but were located in regions that were overall heavy spenders.

"Areas don't make decisions. Physicians and hospitals and delivery systems make decisions on how patients are treated," said Dr. Joseph Newhouse, a Harvard Medical School researcher who headed the panel, in an interview. "The incentives really need to go to the decision makers."

The panel said the health law's payment reforms that target doctors and hospitals make more sense, although those efforts are so new there isn't evidence of whether they are effective in encouraging higher quality, more cost-conscious care.

Those programs include several that have already begun. One pays hospitals based on quality, and another penalized more than 2,200 with excess readmissions. Another is set to launch in 2015 to pay large physician groups based on quality.

"What the IOM is doing is helpful, is producing great reports and access to data we've never had before," said Democratic Rep. Ron Kind of Wisconsin, who represents one of the low-spending areas. "It's clear that the variation is there, you can't attribute it to the population is being served. There are too many tests, too many procedures being done. Ultimately the goal here is to figure out a way to kill fee-for-service."

Copyright 2014 Kaiser Health News. To see more, visit http://www.kaiserhealthnews.org/.

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