Date:  July 17, 2012




Revised Geographic Adjustments Could Improve Accuracy of Medicare Payments, Will Not Solve Access, Quality Problems


WASHINGTON — Changing the way that Medicare payments are adjusted to account for regional variations in the cost of providing care as recommended by a previous report from the Institute of Medicine would result in payment increases for some hospitals and practitioners and decreases for others, concludes the Phase II report from the IOM study.  Geographic adjustments should be used to ensure the accuracy of payments, said the committee that wrote the report, but they are not optimal tools to tackle larger national policy goals such as improving access to care in medically underserved areas.


Adjustments to Medicare payments based on geography are intended to account for regional variations in wages, rents, and other costs incurred by hospitals and individual health care practitioners.  Federal law requires geographic adjustments to be budget neutral, meaning any increase in the amount paid to one hospital or practitioner must be offset by a decrease to others.  In its previous report, the committee recommended changes to the data sources and methods used to calculate payment adjustments to achieve greater accuracy. 


Using a series of statistical simulations and analyses in the second phase of the study, the committee concluded that its recommendations, if adopted by the Medicare program, would improve the technical accuracy of payments, and these payments would increase or decrease by less than 5 percent on average for the majority of hospitals and most physicians.  The committee acknowledged that seemingly small percentages could make significant differences to providers and organizations striving to provide high-value health care.  The simulations showed that the committee's proposed new approach using data from the Bureau of Labor Statistics would yield generally higher relative hospital wages in rural areas than the current approach using Medicare data.  The changes in how practitioner payments are calculated would result in an overall payment reduction of just under 3 percent to health professionals in nonmetropolitan counties and an aggregate increase of less than half of 1 percent to those practicing in metropolitan counties. 


There is a general perception that variations in payment rates could affect where health professionals decide to practice and contribute to regional differences in the availability and quality of care.  Given the relatively modest payment changes that would occur in many regions and given that geographic adjustments are only one factor in Medicare payments, revising these calculations may not have a significant overall impact on the distribution of providers and on improving care access and quality, the report says.  


Although most Medicare beneficiaries have good access to health care, the ease of finding providers who accept Medicare patients is more limited in medically underserved rural and metropolitan regions and areas that include disproportionately high numbers of racial and ethnic minorities.  There are several strategies that would be more effective at boosting access to care than geographic payment adjustments, the committee concluded.  For example, Medicare should support policies that enable all qualified health professionals to practice to the full extent of their education and training.  The supply of primary care services in underserved areas could be increased if state licensing and credentialing laws consistently allowed broader scope of practice for the complete range of professionals, such as nurse practitioners and physician assistants.  The report also recommends that Medicare pay for telemedicine and other services that enable clinicians to reach more patients in underserved areas.


"The exercise of applying the recommendations from our Phase I report confirmed that using the data sources and methods we proposed would improve the accuracy of Medicare payments," said committee chair Frank Sloan, J. Alexander McMahon Professor of Health Policy and Management and professor of economics, Duke University, Durham, N.C.  "Payment accuracy is important, but geographic adjustments are not the optimal way to achieve larger goals, such as ensuring access to clinicians or reducing disparities in care.  Such objectives should be addressed through other means."


The report was sponsored by the Centers for Medicare and Medicaid Services, U.S. Department of Health and Human Services.  Established in 1970 under the charter of the National Academy of Sciences, the Institute of Medicine provides objective, evidence-based advice to policymakers, health professionals, the private sector, and the public.  The Institute of Medicine, National Academy of Sciences, National Academy of Engineering, and National Research Council together make up the independent, nonprofit National Academies.  For more information, visit or   A committee roster follows.



Christine Stencel, Senior Media Relations Officer

Shaquanna Shields, Media Relations Assistant

Office of News and Public Information

202-334-2138; e-mail


Pre-publication copies of Geographic Adjustment in Medicare Payment, Phase II: Implications for Access, Quality, and Efficiency are available from the National Academies Press; tel. 202-334-3313 or 1-800-624-6242 or on the Internet at or  Reporters may obtain a copy from the Office of News and Public Information (contacts listed above).

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Board on Health Care Services


Committee on Geographic Adjustment Factors in Medicare Payment


Frank A Sloan, Ph.D. (chair)

J. Alexander McMahon Professor of Health Policy and Management, and

Professor of Economics

Duke University

Durham, N.C.

M. Roy Wilson, M.D., M.S. (vice chair)

Chancellor Emeritus

University of Colorado


Jon B. Christianson, Ph.D.

James A. Hamilton Chair in Health Policy

and Management

School of Public Health

University of Minnesota



Stuart Guterman, M.A.

Vice President

Payment and System Reform

The Commonwealth Fund

Washington, D.C.


Carlos R. Jaen, M.D., Ph.D., FAAFP

Dr. John Smith Jr. Endowed Professor and Chair

Department of Family and Community Medicine

University of Texas Health Science Center

San Antonio


Jack D. Kalbfleisch, Ph.D.

Professor of Biostatistics and Statistics, and


Kidney and Epidemiology Cost Center

School of Public Health

University of Michigan

Ann Arbor


Marilyn Moon, Ph.D., R.N.

Senior Vice President and Director

Health Program

American Institutes for Research

Silver Spring, Md.


Cathryn L. Nation, M.D.

Associate Vice President for Health Sciences

Office of the President

University of California



Joanne M. Pohl, Ph.D., ANP-BC, FAAN, FAANP

Professor Emerita

Division of Health Promotion and Risk Reduction, and

Principal Investigator

Institute for Nursing Centers
School of Nursing

University of Michigan
Ann Arbor


Thomas C. Ricketts, Ph.D., M.P.H.

Professor of Health Policy and Administration

and Social Medicine, and

Managing Director

Cecil G. Sheps Center for Health Research

Gillings School of Global Public Health

University of North Carolina

Chapel Hill


Jane E. Sisk, Ph.D., M.A.


Institute of Medicine, and

Former Director

Division of Health Care Statistics

National Center for Health Statistics

Centers for Disease Control and Prevention

Hyattsville, Md.


Bruce Steinwald, M.B.A.

Independent Consultant

Washington, D.C.


David Vlahov, Ph.D., M.S.N.

Dean and Professor

School of Nursing

University of California

San Francisco


Barbara O. Wynn, M.A.

Senior Policy Analyst

RAND Corp.

Arlington, Va.


Alan M. Zaslavsky, Ph.D.

Professor of Health Care Policy

Harvard Medical School



Stephen Zuckerman, Ph.D.

Senior Fellow

Health Policy Center

The Urban Institute

Washington, D.C.




Margaret Edmunds, Ph.D.

Study Director