Flawed Medicare Data Led to Inaccurate Payments

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Author: Georges Baxter

Medicare payment adjustments and flawed data can often lead to inaccurate reimbursements for hospitals and doctors throughout the U.S.

"Medicare is the largest health insurer in the United States," notes Alan Weinstock, insurance broker with MedicareSupplementPlans.com. "It provides coverage for about 39 million people aged 65 and older."

Medicare Fee-For-Service Payment Practices

Although Medicare is a national program, it adjusts fee-for-service payments to health care professionals and hospitals based on the geographic locations in which they practice. This adjustment is to account for the differences in the cost of doing business - such as employee compensation - in urban and rural areas. The goal is to ensure that Medicare does not overpay hospitals and practitioners in certain areas and underpay others as a result of geographic differences.

However, there are disagreements about how best to adjust payments. Among these issues, critics cite "inconsistencies in the definitions of payment areas and labor markets, concerns about the appropriateness of data used to calculate adjustments, and lack of transparency of the methods for making the adjustments."

According to federal law, if payments increase for providers in one area, they must be offset by lowered payments to providers in another area. The report indicates that the difficulty is that the system is so flawed that nearly 40% of providers have been reclassified into wage indexes other than the one that applies to the geographic area in which they are located.

Another issue is that the current system of geographic adjustment for hospitals uses one set of 441 markets while the geographic adjustment system for physi¬cian payment uses a different set of 89 payment areas to represent labor markets. This inconsistency raises questions about whether defining entire states as labor markets is accurate.

Outcome of IOM Report

The study was commissioned by the White House in March 2010 because providers in many regions were underpaid, making it difficult to recruit health care practitioners to certain areas of the country.

The goal of the study is to provide recommendations that increase the likelihood that the geographic adjustments reflect reasonably accurate measures and are consistent with national goals. What is recommended is an integrated approach that includes:

1. moving to a single source of wage and benefits data

2. changing to one set of payment areas and labor markets

3. expanding the range of occupations included in the index calculations

Ultimately, the committee indicated that its recommenda¬tions are intended to improve accuracy of geo¬graphic adjustments to Medicare payment. And while imple¬mentation will involve changes in the calculations of the indexes, in the long run it will bring the advantages of improved accuracy and greater con¬sistency within the Medicare program.

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