Proposals to Address Geographic Variations in Health Care Spending Gather Momentum, Provoke Controversy

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Before the recess, the issue of geographic variations in health care expenditures became a key element in negotiations in both houses to reach consensus on reform. Concern about such payment disparities has prompted Congress to weigh various proposals to reform Medicare payment policy both to eliminate the disparities and to promote value. At the same time, policymakers have questioned whether Congress has the political will to enact such significant payment changes or whether an independent body should be empowered to make the tough choices. Some view resolving this issue as key to meaningful reform of the health delivery system while others balk at the prospect of shifting authority for fundamental payment decisions to unelected and politically unaccountable officials. As Congress reconvenes, this is one of several controversial issues still to be tackled by negotiators in both Houses.

Geographic disparities in Medicare payments have been a perennial matter of Congressional concern, with “low cost” regions frequently at odds with “high cost” regions that receive higher per capita Medicare payments. However, concern about such disparities has attained new levels as Congress seeks to reform Medicare payments to reduce spending, improve quality and identify scorable savings that can be used to pay for expanded coverage. These efforts have intensified in the wake of a June 2009 The New Yorker article, “The Cost Conundrum,” by Atul Gawande, a surgeon and former health policy advisor to President Clinton, which highlighted a February 2009 study conducted by the Dartmouth Atlas Project.

The Dartmouth Atlas study found that the threefold variation in Medicare spending across different regions of the country is explained solely by the volume and intensity of care provided, and is not correlated with the price of discrete services, the distribution of illness, or the quality of the actual care delivered. Gawande’s article profiled health spending in the small border town of McAllen, Texas, where Medicare spending per person exceeds the average resident’s annual salary by $3,000, while quality and outcomes lag behind lower cost areas, including El Paso, Texas, a demographically similar community a mere 800 miles along the border. The widely-read article is credited with prompting the recent spate of proposals to address Medicare payment variations and to eliminate politics from the Medicare payment process.

The proposals being discussed range from requiring the Institute of Medicine (“IOM”) to study and make recommendations to revise Medicare’s geographic adjustment factors to empowering an independent Medicare payment commission to adopt Medicare payment reforms unilaterally, subject only to the disapproval of Congress. These proposals—described in more detail below—could have a profound impact on provider payments, redistributing payments from high cost to low cost areas and realigning payments to promote quality and value. Depending on how the reforms are structured, high cost providers—such as academic medical centers—could see a significant drop in funding. Of particular concern to many, the proposals could also dramatically curtail political influence over Medicare payment policies, making it exceptionally difficult for providers disadvantaged by such polices to redress their grievances through the political process.

IOM Recommendations to Revise Medicare Geographic Adjustment Factors. The bills approved by all three House committees of jurisdiction direct the IOM to issue a report on the accuracy and effect of Medicare’s geographic adjustment factors (for hospital and physician payments) and to recommend modifications. The Secretary of Health and Human Services would then be required to include proposals based on the IOM’s recommendations in the next annual inpatient hospital prospective payment system (“IPPS”) and physician fee schedule rules. The legislation includes a two-year hold harmless provision under which no geographic adjustment factors would be reduced. Thereafter, the changes would need to be budget neutral (with payment reductions in some areas sufficient to offset increases elsewhere). The proposal has, to a large extent, pitted urban representatives against their rural counterparts, as most of any rural increase would likely come at the expense of urban providers and academic medical centers. Indeed, reports indicate that as many as 40 House Democrats are threatening to oppose the bill if it contains this provision.

IOM Recommendations to Adopt Medicare Payment Reforms to Promote Quality Care. In a separate proposal, the House Ways & Means Committee adopted an amendment during its markup that would require the IOM to develop recommendations to promote “the efficient delivery of high quality, evidence-based, patient-centered care,” including the use of a “value index” based on a composite of measures of quality and cost. Under pressure from a coalition of moderate and conservative Democrats, House leaders reportedly later agreed to strengthen this amendment by requiring that the Secretary of HHS adopt the IOM’s proposals in rulemaking, which would become binding unless Congress adopted a joint resolution of disapproval by a certain date. Although this further provision  was not reflected in any of the ensuing  committee markups, Energy and Commerce Committee Chairman Henry Waxman (D-CA) stated on the record that he intends to add it before the bill reaches the House floor. More recently, however, rumors have circulated that the deal as reported is still under negotiation.

“IMAC.” In June, President Obama endorsed a proposal to create an Independent Medicare Advisory Council (“IMAC”), which would be granted broad authority to adopt Medicare payment reforms for the full range of providers and services, subject to Congressional disapproval. The President’s IMAC proposal sparked significant provider opposition, as well as resistance by Members of Congress from both parties, who are concerned that the proposal would strip Congress of its ability to influence Medicare payment policy. Support for the proposal has also waned in light of a low score issued by the Congressional Budget Office (“CBO”), which found that the IMAC would result in only $2 billion in savings over a ten year period.

“Super MedPAC.” Despite the opposition to IMAC, negotiators from the Senate Finance Committee are reportedly interested in pursuing a modified version of the proposal. Although the Senate Finance Committee has yet to release its health reform legislation, Chairman Max Baucus (D-MT) has indicated that the Committee’s package is likely to include a “Super MedPAC” proposal, under which this long-standing advisory panel would be required to recommend changes that would achieve a specified level of annual reduction in the projected growth in program spending. According to press reports, that modification would result in scorable savings of up to $35 billion, thereby fueling the inevitable concern that it would permit dramatic changes in Medicare payment without the approval of Congress.

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