be further evaluated in the future and addressed through another policy mechanism, but not through geographic adjustment.

This chapter briefly addresses two overarching policy issues that arose many times during the committee’s deliberations—the overall effect that certain Medicare payment policies may have on the geographic distribution of the health care workforce, and the clear evidence of disparities in the care provided in different geographic areas, which in turn may be reflected in the health of the population in different areas.

Because of its sheer size and influence on providers and other payers, Medicare tends to be seen as a policy driver in discussions of health care delivery reform. The committee discussed two features of Medicare’s fee-for-service payment systems—the manner in which fees for services are established and the subsidization of graduate medical education (GME).

Disparities are especially important to consider in the context of analysis that uses averages to compare and contrast different areas. This is so because averages have a tendency to obscure potentially important differences in the well-being of racially and ethnically distinct populations in local communities.

While the committee does not offer recommendations on disparities and these features of Medicare payment policies, it believes that serious debate over geographic access to care, including workforce policy, needs to take them into account.


During its Phase I deliberations, when the committee was focused on Medicare geographic adjustments to fee-for-service provider payments, several committee members observed that there were other important features of Medicare payment that affect the distribution of Medicare dollars among Medicare providers and geographic areas. The committee eventually decided that the fee-for-service geographic adjustments should be used only to adjust payments for underlying geographic differences in the costs of providing services, and several recommendations were offered that would improve the current system in achieving that objective (IOM, 2011).

However, during Phase II, the committee discussed other aspects of Medicare payment that could be appropriate targets for payment reform to improve geographic access to high-quality health care. These discussions centered on the Medicare fee schedule for physicians and other individual practitioners and on the supplemental payments to hospitals to subsidize the costs of GME.

Fee-for-Service Payment

In Chapter 2 of this report, the committee examined statistical simulations of its recommended changes to geographic adjustments to Medicare payments to clinical practitioners and considered how the changes might affect Medicare beneficiary access to health care. Known individually as the geographic practice cost indexes (GPCIs) and collectively as the geographic adjustment factor, the physician fee schedule adjustments are applied to the fees that Medicare pays physicians and other practitioners who are authorized to bill for services under Medicare (IOM, 2011). Over the course of its deliberations, the committee came to realize that the ways that Medicare sets its national fees, before geographic adjustments are applied, may have consequences for beneficiary access to health services through their influence on professional income and medical specialty choice.

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