Congress of the United States
Washington, DC 20515
November 10, 2011
The Institute of Medicine
Attn: Committee Chairman Frank Sloan
Committee on the Geographic Adjustment Factors in Medicare Payment
500 Fifth Street, NW
Washington, DC 20001
Dear Chairman Sloan:
As members of the Quality Care Coalition (Coalition), we are writing to express our concerns with the findings in the Institute of Medicine’s (IOM) second edition of the Phase I Report on Geographic Adjustment Factors in Medicare Payment. While we appreciate the hard work and expertise of the IOM Committee on Geographic Adjustment Factors in Medicare Payment (Committee), we are concerned that the work of the Committee is not producing actionable recommendations that comprehensively address current inaccuracies in Medicare’s geographic variables. When geographic adjustments cause large disparities in payments, physicians may choose to locate in regions that pay better, thus further affecting access negatively in rural areas.
The Coalition was pleased when HHS Secretary Sebelius fulfilled our request, by announcing her intent to commission the Institute of Medicine (IOM) to conduct a study to evaluate hospital and physician geographic payment adjustments, the validity of the adjustment factors, measures and methodologies used in those factors, and sources of data used for such adjustments. We turned to the IOM with the hope that the IOM could rise above geographic and partisan allegiances, dig into the root causes and effects of geographic variation, and come up with actionable recommendations to allow Secretary Sebelius to fulfill her next commitment to us: changing the geographic adjusters in Medicare to ensure they reflect accurate data and result is better access to care for seniors.
Given this charge to the IOM, we have a number of concerns with the report:
• The Committee recommended that CMS should continue to use proxies to measure geographic variation in the physician work GPCI. A determination of the validity of the current proxies was one of the key reasons why the Coalition pushed to get the IOM study funded. The Coalition sent a letter to the IOM in June reiterating that “it is critical that Phase II include full recommendations to update the work geographic adjuster.” The Committee’s failure to evaluate the validity of the proxies was thus very disappointing. How did the Committee justify finding that CMS should continue using proxies when it made no attempt to determine how accurately the current proxies, or any other proxies, reflected actual geographic variation?
• In its recommendations, the Committee concludes that using the Medicare Economic Index (MEI) cost share weights as the data for the Geographic Practice Cost Indices (GPCIs) cost share weights is “reasonable and should be continued.” However, there is no evidence that the Committee analyzed the MEI weighting to determine that the GPCI weights accurately represent the real-world cost structure of physician practices. There
are many recent changes occurring in physician practices, including wider utilization of electronic health records, changes in the use of non-physician labor, and new organizational structures. Current payments based on practice structures from 5-6 years ago lack validity. Did the Committee analyze the MEI weights with the goal of determining whether they accurately reflect costs? If not, does the Committee intend to do this analysis as part of Phase 2? If not, how does the Committee justify a recommendation to continue the use of this data, without fulfilling its charge of analyzing the accuracy of such data?
• The MEI cost share weighting of 1:2 for the rent category (10.22%) vs. the wage category (19.15%) is inconsistent with the experience of physician practices that we have heard from, who indicate that the ratio of rent costs to wage costs is 1:4 or 1:5. There is concern that the previous MEI and GPCI weighting had erroneously included nonoccupancy office costs in the rent portion of the PE GPCI which caused an “overweighting” of the rent index and subsequent over-adjustment of rent. How is the Committee ensuring that the cost share weighting actually reflects real-world costs?
• Rural practices have additional burdens due to on-call time and outreach time/efforts. Though Medicare does not reimburse for these practices, physician salaries must recognize these aspects of rural practice. Many of our physician constituents pay nationally competitive salaries for physician work, regardless of Medicare’s reimbursement. The Work GPCI should take into account the geographic differences in the cost of physician labor and not use unrelated professions as a proxy for physician work. The IOM should consider measuring the full costs of work, including the on-call burden, outreach time, and other unique regional differences. How can the IOM make the claim that the overall data is either accurate, or inaccurate, if it fails to measure all costs?
Our Coalition’s goal to reward value depends on accurate measurement of the factors involved with physician care of beneficiaries. An essential part of physicians’ ability to improve value is to correct regional disparities in Medicare reimbursement. Current unmerited regional disparities stifle overall quality and hinder incentives to promote more efficient care.
We look forward to our discussion of these concerns during our November 15th meeting. Thank you for your attention to this matter.
CC:
Roger C. Herdman, Institute of Medicine
Margaret Edmunds, Institute of Medicine
December 22, 2011
The Honorable Bruce Braley
The Honorable Jay Inslee
The Honorable Betty McCollum
The Honorable Ron Kind
Dear Members of the Leadership of the Quality Care Coalition (QCC):
As chair of the Institute of Medicine (IOM) Committee on Geographic Adjustment Factors in Medicare Payment, I am writing to respond to your letter of November 10, 2011, and to address questions that members of the QCC posed to Mr. Bruce Steinwald, committee member, and Dr. Margo Edmunds, IOM study director, during the November 15, 2011 meeting to discuss the committee’s phase 1 report.
I would like to take this opportunity to clarify the committee’s statement of assumptions and principles that led to these recommendations and to offer some additional clarification about the ongoing analysis of the impact of the phase 1 recommendations on stakeholders.
As described in Chapter 1 of the phase 1 report, the committee’s technical and methodological approach to the study was evidence-based and grounded in the recognition that its primary charge in phase 1 of the study was to improve the accuracy of the adjustment factors and the methods and measures used to determine them.1
As described in the report, principles 3, 4, and 5 emphasized improving accuracy by reflecting market prices faced by all health care employers in local markets.2 As labor is the most important input for both hospitals and physician practices, the committee devoted an entire chapter (Chapter 2) of the phase 1 report to an examination of the factors that cause labor costs faced by providers to vary geographically. This perspective led the committee to recommend a change in the payment areas for physician payments from the 89 areas currently used, to 441 areas based on metropolitan statistical areas, which are currently used for the hospital wage index. If adopted, this change would not only promote consistency in the two payment indexes, but would also anticipate market changes leading to a more integrated health care delivery system.
The committee recognizes that its recommended change in physician payment areas, if implemented, could result in a significant redistribution of physician and other clinical provider payments, particularly in the 34 states that currently have only one statewide payment area. In
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1 Refer to page S-3, Box 5-1, Statement of Task, in Geographic Adjustment in Medicare Payment Phase 1: Improving Accuracy, Second Edition, in press.
carrying out its charge, the committee is currently overseeing an analysis by RTI International of the potential impact of the payment area change, as well as other recommended changes. The committee will identify areas where payments might decline and determine whether beneficiary access or other concerns might indicate the need for policy interventions. This approach is consistent with another phase 1 principle, that policy issues should be addressed directly rather than sacrificing the accuracy of Medicare payment adjustments.
The committee’s emphasis on local labor markets also led to its recommendation that the hospital wage index and the practice expense GPCI should include all occupations rather than the limited number currently in use. This will help to recognize changes in the mix of skilled employees over time, such as increased employment of information technology specialists.
CMS has already adopted this recommendation, which was in the proposed rule for physician payment in 2012. However, the committee did not recommend changes to the Medicare Economic Index (MEI) or weighting factors in the Practice Expense GPCI. On one hand, the committee concluded that the evidence supporting regional, as opposed to national, weights was inadequate. On the other hand, the committee could not find a basis for recommending changes to the weighting factors in the data that were available that would improve the accuracy of Medicare payments.
Finally, the committee understands that the QCC is dissatisfied with our recommendations on the occupational proxies and percentage calculation pertaining to the physician work GPCI. As noted in the phase 1 report and the November 15, 2011 meeting, the committee laid out a specific process for CMS to follow to conduct analysis and modify the work adjustment based on the analytical results. Rest assured, the committee would have been glad to conduct this analysis itself if it had had the necessary time and data. Although we appreciate your concern about the willingness and ability of CMS to follow the process spelled out by the committee, we understand that CMS has already begun a reassessment of the occupational proxies, as we recommended.
As you know, the committee is conducting analyses and working on recommendations that will be contained in its phase 2 report, scheduled to be released in the spring of 2012. If you have any questions about the process being followed by the committee, please contact the study director, Dr. Margo Edmunds, at (202) 334-2397 or Dr. Roger Herdman at (202) 334- 1302.
Sincerely yours,
Frank A. Sloan, PhD
Chair, Committee on Geographic Adjustment Factors in Medicare Payment
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