VARIATION IN
HEALTH CARE SPENDING

Target Decision Making, Not Geography

Committee on Geographic Variation in Health Care
Spending and Promotion of High-Value Care

Board on Health Care Services

Joseph P. Newhouse, Alan M. Garber, Robin P. Graham,
Margaret A. McCoy, Michelle Mancher, and Ashna Kibria, Editors

INSTITUTE OF MEDICINE
OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

Washington, D.C.

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Committee on Geographic Variation in Health Care Spending and Promotion of High-Value Care Board on Health Care Services Joseph P. Newhouse, Alan M. Garber, Robin P. Graham, Margaret A. McCoy, Michelle Mancher, and Ashna Kibria, Editors

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THE NATIONAL ACADEMIES PRESS  500 Fifth Street, NW  Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Govern- ing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineer- ing, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropri- ate balance. This study was supported by Contract/Grant No. HHSP23320042509XI between the National Academy of Sciences and the Centers for Medicare & Medicaid Ser- vices, Department of Health and Human Services. Any opinions, findings, conclu- sions, or recommendations expressed in this publication are those of the editors and do not necessarily reflect the views of the organizations or agencies that provided support for the project. International Standard Book Number-13:  978-0-309-28869-9 International Standard Book Number-10:  0-309-28869-X Additional copies of this report are available for sale from the National Academies Press, 500 Fifth Street, NW, Keck 360, Washington, DC 20001; (800) 624-6242 or (202) 334-3313; http://www.nap.edu. For more information about the Institute of Medicine, visit the IOM home page at: www.iom.edu. Copyright 2013 by the National Academy of Sciences. All rights reserved. Printed in the United States of America The serpent has been a symbol of long life, healing, and knowledge among almost all cultures and religions since the beginning of recorded history. The serpent ad- opted as a logotype by the Institute of Medicine is a relief carving from ancient Greece, now held by the Staatliche Museen in Berlin. Suggested citation: IOM (Institute of Medicine). 2013. Variation in health care spending: Target decision making, not geography. Washington, DC: The National Academies Press.

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“Knowing is not enough; we must apply. Willing is not enough; we must do.” —Goethe Advising the Nation. Improving Health.

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The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Acad- emy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding en- gineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineer- ing programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. C. D. Mote, Jr., is presi- dent of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Insti- tute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sci- ences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Coun- cil is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. C. D. Mote, Jr., are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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COMMITTEE ON GEOGRAPHIC VARIATION IN HEALTH CARE SPENDING AND PROMOTION OF HIGH-VALUE CARE JOSEPH P. NEWHOUSE (Chair), John D. MacArthur Professor of Health Policy and Management, Department of Health Policy and Management, Harvard School of Public Health, Harvard Kennedy School, Harvard Medical School, and the Faculty of Arts and Sciences, Boston, Massachusetts ALAN M. GARBER (Vice-Chair), Provost, Harvard University; Mallinckrodt Professor of Health Care Policy, Harvard Medical School, Boston, Massachusetts PETER BACH, Director of the Center for Health Policy and Outcomes, Department of Epidemiology & Biostatistics, Memorial Sloan- Kettering Cancer Center, New York, New York JOSEPH BAKER, President, Medicare Rights Center, New York, New York AMBER E. BARNATO, Associate Professor of Medicine, Clinical and Translational Science, and Health Policy and Management and Director of the Clinical Scientist Training Program and the Doris Duke Clinical Research Fellowship, University of Pittsburgh, Pennsylvania ROBERT BELL, Lead Member Technical Staff, Statistics Research Department, AT&T Labs-Research, Florham Park, New Jersey KAREN DAVIS, Eugene and Mildred Lipitz Professor and Director, Roger C. Lipitz Center for Integrated Health Care, Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health, Washington, DC A. MARK FENDRICK, Professor, Departments of Internal Medicine and Health Management & Policy, University of Michigan; Director, University of Michigan Center for Value-Based Insurance Design, Ann Arbor PAUL B. GINSBURG, President, Center for Studying Health System Change, Washington, DC DOUGLAS A. HASTINGS, Chair of the Board of Directors, Epstein Becker & Green, P.C., Washington, DC BRENT C. JAMES, Chief Quality Officer and Executive Director, Institute for Health Care Delivery Research, Intermountain Health Care, Salt Lake City, Utah KIMBERLY S. JOHNSON, Assistant Professor, Department of Medicine, Division of Geriatrics, Duke University, Durham, North Carolina EMMETT B. KEELER, Senior Mathematician, RAND Corporation, Santa Monica, California v

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THOMAS H. LEE, Professor of Medicine, Harvard Medical School and Harvard School of Public Health; CEO, Partners Community HealthCare, Inc., Boston, Massachusetts MARK B. McCLELLAN, Director, Engelberg Center for Health Care Reform; Leonard D. Schaeffer Chair in Health Policy Studies, Brookings Institution, Washington, DC SALLY C. MORTON, Professor and Chair, Department of Biostatistics, Graduate School of Public Health, University of Pittsburgh, Pennsylvania ROBERT D. REISCHAUER, Distinguished Institute Fellow and President Emeritus, The Urban Institute, Washington, DC ALAN WEIL, Executive Director, National Academy for State Health Policy, Washington, DC GAIL R. WILENSKY, Senior Fellow, Project HOPE, Bethesda, Maryland Study Staff ROBIN P. GRAHAM, Senior Program Officer, Study Director DIANNE WOLMAN, Senior Program Officer (through December 2010) MARGARET A. McCOY, Program Officer MEG F. BARRY, Associate Program Officer (through December 2012) MICHELLE MANCHER, Associate Program Officer ASHNA KIBRIA, Research Associate (from July 2012) CASSANDRA CACACE, Research Associate (October 2011 through April 2012) REBECCA MARKSAMER, Research Associate (from February 2013) NINA SURESH, Research Assistant (through August 2012) JILLIAN LAFFREY, Assistant, Board on Health Care Services KATERINA HORSKA, Presidential Management Fellow (December 2011 through May 2012) MARGARET L. SCHWARZE, IOM Anniversary Fellow SETH GLICKMAN, IOM Anniversary Fellow ROGER HERDMAN, Director, Board on Health Care Services Consultants GARY ALLEN, Truven Health Analytics ABBY ALPERT, RAND Corporation DAVID AUERBACH, RAND Corporation ANITA AU-YEUNG, Acumen, LLC SARAH AXEEN, Precision Health Economics KATHERINE BAICKER, Harvard University SEO HYON BAIK, University of Pittsburgh vi

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JOHN BAILAR, University of Chicago (Emeritus) ERIC BARRETTE, The Lewin Group HANI BASHOUR, Acumen, LLC JAY BHATTACHARYA, Acumen, LLC RONA BRIERE, Technical Writing Consultant AMITABH CHANDRA, Harvard Kennedy School of Government MICHAEL CHERNEW, Department of Health Care Policy, Harvard Medical School CAMILLE CHICKLIS, Acumen, LLC KENNAN CRONEN, Acumen, LLC BRYAN DOWD, University of Minnesota EMILY EHRLICH, Truven Health Analytics AMANDA FARR, Truven Health Analytics ELLIOTT S. FISHER, Dartmouth Institute for Health Policy and Clinical Practice CAROL FORHAN, Truven Health Analytics JESSELYN FRILEY, Acumen, LLC PROJESH GHOSH, The Lewin Group TERESA GIBSON, Department of Health Care Policy, Harvard Medical School; Truven Health Analytics IAN GLENN, The Lewin Group DANA GOLDMAN, Precision Health Economics CLIFFORD GOODMAN, The Lewin Group DANIEL GOTTLIEB, Dartmouth Institute for Health Policy and Clinical Practice THOMAS HOERGER, RTI International PAUL HOGAN, The Lewin Group PETER HUCKFELDT, RAND Corporation MARCO D. HUESCH, University of Southern California PETER HUSSEY, RAND Corporation JOSIE IDOKO, The Lewin Group MELINA IMSHAUG, Truven Health Analytics CAMERON KAPLAN, University of Pittsburgh DARIUS LAKDAWALLA, Precision Health Economics BRUCE LANDON, Department of Health Care Policy, Harvard Medical School; Division of Primary Care and General Internal Medicine, Department of Medicine, Beth Israel Deaconess Medical Center MARY BETH LANDRUM, Department of Health Care Policy, Harvard Medical School CHRISTOPHER LAU, RAND Corporation BRANDY LIPTON, Acumen, LLC HANGSHENG LIU, RAND Corporation THOMAS MaCURDY, Acumen, LLC vii

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WILLARD G. MANNING, University of Chicago JACLYN MARSHALL, The Lewin Group MICHAEL McKELLAR, Department of Health Care Policy, Harvard Medical School ELLEN MEARA, Dartmouth Institute for Health Policy and Clinical Practice ATEEV MEHROTRA, RAND Corporation COURT MELIN, The Lewin Group KAY MILLER, Truven Health Analytics BRIAN MOORE, Truven Health Analytics CAITLIN MORRIS, The Lewin Group SIVIA NAIMER, Department of Health Care Policy, Harvard Medical School SEBASTIAN NEGRUSA, The Lewin Group SIMON NEUWAHL, RTI International EDWARD C. NORTON, University of Michigan MICHAEL K. ONG, University of California, Los Angeles DANIELLA PERLROTH, Acumen, LLC TOMAS PHILIPSON, Precision Health Economics BRADY POST, The Lewin Group DANIEL ROGERS, Acumen, LLC JOHN ROMLEY, Precision Health Economics SHAHIN SANEINEJAD, Acumen, LLC JASON SHAFRIN, Acumen, LLC VICTORIA SHIER, RAND Corporation ELEN SHRESTHA, Acumen, LLC JONATHAN SKINNER, Dartmouth Institute for Health Policy and Clinical Practice MARK TOTTEN, RAND Corporation JASON WAHLMAN, The Lewin Group NANCY WALCZAK, The Lewin Group JOHN WARNER, The Lewin Group ADAM S. WILK, University of Michigan BENJAMIN YARNOFF, RTI International SAJID ZAIDI, Acumen, LLC YUTING ZHANG, University of Pittsburgh WEIPING ZHOU, Dartmouth Institute for Health Policy and Clinical Practice viii

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Reviewers T his report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Research Council’s Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confiden- tial to protect the integrity of the deliberative process. We wish to thank the following individuals for their review of this report: HENRY AARON, The Brookings Institution STUART ALTMAN, Brandeis University GERARD F. ANDERSON, Johns Hopkins University DAVID A. ASCH, University of Pennsylvania KATHERINE BAICKER, Harvard School of Public Health RICHARD A. BERMAN, Emeritus, Manhattanville College DAVID BLUMENTHAL, The Commonwealth Fund ELLIOT FISHER, Dartmouth Institute of Health Policy and Clinical Practice ELIZABETH A. McGLYNN, Kaiser Permanente MARILYN MOON, American Institutes for Research ROBERT PHILLIPS, American Academy of Family Physicians THOMAS M. PRISELAC, Cedars-Sinai Health System JOHN ROTHER, National Coalition on Health Care ix

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x REVIEWERS DANA GELB SAFRAN, Blue Cross Blue Shield of Massachusetts GORDON TRAPNELL, Actuarial Research Corporation ALAN M. ZASLAVSKY, Harvard Medical School STEVE ZUCKERMAN, The Urban Institute Although the reviewers listed above provided many constructive com- ments and suggestions, they were not asked to endorse the report’s obser- vations nor did they see the final draft of the report before its release. The review of this report was overseen by DONALD M. STEINWACHS, Johns Hopkins Institute for Policy Studies, and CHARLES E. PHELPS, University of Rochester (Emeritus). Appointed by the Institute of Medicine and the National Research Council, they were responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution.

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Foreword M edicare’s current cost trajectory is unsustainable. However, cut- ting expenditures through indiscriminate payment or benefit re- ductions would tend to shift costs to overburdened beneficiaries or diminish access to and quality of care. The only sensible way to restrain costs is to enhance the value of the health care system, thus extracting more benefit from the dollars spent. Public officials and policy makers long have searched for a simple way to accomplish this task and recently proposed an approach based on the long-standing phenomenon of geographic variation in Medicare spending and quality. The underlying premise is that certain regions of the United States spend less per Medicare beneficiary because they are more efficient providers of health care. If only researchers were able to determine what these high-value regions do that low-value ones do not, the theory goes, the core goal of the U.S. health care system (simultane- ous achievement of high performance and affordability) could be achieved. The Institute of Medicine’s Committee on Geographic Variation in Health Care Spending and Promotion of High-Value Care explored a wealth of public (Medicare and Medicaid) and private (commercial insurer) data to understand better the extent and sources of geographic variation in spending and quality for Medicare and for the U.S. health care system as a whole. The data informing the committee’s work may be accessed at www.iom.edu/geovariationmaterials. The analyses of these data exposed a number of new questions, as well as answers. Do existing measures of health status account sufficiently for differences in disease burden among regions? How does one adequately measure market competition, let alone patient preferences and provider discretion? Do the geographic regions xi

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Acknowledgments T he committee and staff are indebted to a number of individuals and organizations for their contributions to this report. The following in- dividuals provided testimony to the committee at its public sessions: Jeffrey Bailet, Aurora Medical Group Donald M. Berwick, Former President and CEO, Institute for Healthcare Improvement Jonathan Blum, Centers for Medicare & Medicaid Services Carolyn Clancy, Director, Agency for Healthcare Research and Quality Janet Corrigan, National Quality Forum Denis Cortese, Arizona State University Helen Darling, National Business Group on Health William Davenhall, Department of Health and Human Services, Esri Chris Dawe, Committee on Finance, U.S. Senate Larry DeGhetaldi, California Medical Association Cynthia Flynn, Family Health and Birth Center Geoff Gerhardt, Subcommittee on Health, Committee on Ways and Means, U.S. House of Representatives Raymond Gibbons, Mayo Clinic Elizabeth Gilbertson, Hotel Employees and Restaurant Employees International Union Welfare Fund Timothy Gronniger, Committee on Energy and Commerce, U.S. House of Representatives Lorrie Kaplan, American College of Nurse-Midwives xvii

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xviii ACKNOWLEDGMENTS Michael Kitchell, Iowa Medical Society Richard Kronick, Office of the Assistant Secretary for Planning and Evaluation Nancy Lane, PDA Inc. Health Planning Management Consultants John (Jack) Lewin, American College of Cardiology Scott Malaney, American Hospital Association Mark Miller, Medicare Payment Advisory Commission Larry Minnix, American Association of Homes and Services for the Aging Sam Nussbaum, WellPoint Peggy O’Kane, National Committee for Quality Assurance Anne O’Rourke, California Hospital Association Herbert Pardes, New York Presbyterian Hospital Bruce Pyenson, Milliman, Inc. Chris Queram, Wisconsin Collaborative for Healthcare Quality William Rich, American Academy of Ophthalmology Michael Richards, Gundersen Lutheran Health System James Rohack, Scott & White Center for Healthcare Policy Craig Samitt, Dean Clinic Deborah Schumann, Physicians for a National Health Program The Honorable Allyson Schwartz, U.S. House of Representatives (D-PA) Jason Scull, Infectious Disease Society of America Eileen Sullivan-Marx, University of Pennsylvania School of Nursing Jonathan Sunshine, American College of Radiology John Tooker, American College of Physicians Karl Ulrich, Marshfield Clinic Susan Walden, Health Policy Counsel, Committee on Finance (Minority), U.S. Senate Lina Walker, AARP Andrea Weddle, HIV Medicine Association We also extend special thanks to the following individuals who were es- sential sources of information, generously giving their time and knowledge to further the committee’s efforts: Arlene S. Ash, University of Massachusetts Medical School Alan D. Aviles, New York City Health and Hospitals Corporation John Bertko, Centers for Medicare & Medicaid Services Mark S. Blumberg, MD, TruRisk LLC Congressman Earl Blumenauer, State of Oregon Rick Cooper, CEO, The Everett Clinic Guy David, University of Pennsylvania

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ACKNOWLEDGMENTS xix Mark Duggan, Wharton School, University of Pennsylvania Abe Dunn, Bureau of Economic Analysis Anne Elixhauser, Agency for Healthcare Research and Quality Sherry Glied, Columbia University, Mailman School of Public Health Senator Chuck Grassley, State of Iowa Atul Grover, Association of American Medical Colleges James H. Harrison, Onpoint Health Data Christine L. Johnson, Florida Hospital Association Abbi Kaplan, Washington Healthcare Forum Lorrie Kline Kaplan, American College of Nurse-Midwives Bruce M. Kelly, Mayo Clinic Robert Krasowski, National Center for Health Statistics/Research Data Center Congressman Rick Larsen, State of Washington Roderick J. Little, University of Michigan Willard G. Manning, Emeritus, The University of Chicago Peter McMenamin, American Nurses Association Nancy McNeilly, National Association of Urban Hospitals Karen Milgate, Centers for Medicare & Medicaid Services Mark Miller, Medicare Payment Advisory Commission Arielle Mir, Medicare Payment Advisory Commission Robert Murray, Maryland Department of Health and Mental Hygiene Edward C. Norton, University of Michigan School of Public Health Wendell Primus, Senior Policy Advisor, Office of the House Minority Leader Chris Mambu Rasch, Wisconsin Medical Society Dana Gelb Safran, Blue Cross Blue Shield of Massachusetts Deborah Schumann, Physicians for a National Health Program James G. Scott, Applied Policy Frank A. Sloan, Duke University Caroline Steinberg, American Hospital Association Jeffrey Stensland, Medicare Payment Advisory Commission Mayor Ray Stephanson, Everett, Washington David Wennberg, The Dartmouth Institute John E. Wennberg, The Dartmouth Institute We would like to thank OptumInsight for the use of the Norma- tive Health Information database, the Centers for Medicare & Medicaid Services (CMS) and Truven Health Analytics for providing new data on geographic variation, and Verisk Health for making the DxCG® DCG Commercial Software available to our contractors. Their contributions to our research were substantial and essential. We would also like to

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xx ACKNOWLEDGMENTS thank Rona Briere for her expert assistance in editing the report and Alisa Decatur for her support in manuscript preparation. Funding for this study was provided by the CMS. The committee ap- preciates the opportunity and support extended by CMS for the develop- ment of this report. Finally, many individuals within the Institute of Medicine were helpful to the study staff. We would like to thank Clyde Behney, Laura Harbold DeStefano, Chelsea Frakes, Jim Jensen, Sandra McDermin, William McLeod, Abbey Meltzer, Christine Stencel, Vilija Teel, Lauren Tobias, Cheryl Ulmer, Jennifer Walsh, and Sarah Ziegenhorn.

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Contents Abstract xxiii Summary 1 1 Introduction and Overview 23 Spending and Health Care Quality in the United States, 24 Medicare Payment Policy Reform and Geographic Variation in Spending and Quality, 25 Study Charge and Scope, 26 Study Methods, 27 Report Structure, 36 References, 36 2 Empirical Analysis of Geographic Variation 39 Research Framework and Statistical Modeling Approach, 39 Geographic Variation and the Unit of Analysis, 42 Confirming Regional Variation in Spending and Utilization, 42 The Role of Variation in Price, 53 Other Factors Accounting for Geographic Variation, 56 Empirical Evaluation of Predictors of Variation, 59 Influence of Post-Acute Care Services on Regional Variation in Medicare, 65 Limitations of Efforts to Measure Variation in Quality, 70 Research Agenda, 72 References, 74 xxi

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xxii CONTENTS 3 Indexing Value in Medicare: The Role of Geographic Area Performance 79 Defining a Geographically Based Value Index, 79 Conceptual Assessment of a Geographic Value Index, 80 Empirical Assessment of a Geographic Value Index, 82 References, 97 4 Payment and Organizational Reforms to Improve Value 99 Building a High-Value Health Care System Through Clinical and Financial Integration, 101 Evaluating and Refining New Payment Models, 106 Encouraging Broader Adoption of New Payment Reforms, 117 References, 118 Appendixes A Glossary 125 B Acronyms and Abbreviations 129 C Summary of Empirical Modeling Methodology 131 D Regression Model Specifications with “Clusters” of Predictors 137 E Harvard University Price Adjustment Memorandums 141 F Harvard Market Variables Memorandum 147 G Selected Results of the Committee’s Commissioned Empirical Analyses 151 H Public Workshop Agendas 165 I Committee Biographies 171

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Abstract F or more than three decades, experts at the Dartmouth Institute for Health Policy and Clinical Practice have documented that Medicare spending varies greatly across geographic regions, and that higher ex- penditures do not correspond to better health care outcomes. This seminal body of work raised the possibility that some regions of the country may be more efficient than others at providing high-quality health care services. Seeking strategies for reducing Medicare costs, some wonder whether cut- ting payment rates to high-cost areas would save money without adversely affecting health care quality for Medicare beneficiaries. This Institute of Medicine study was undertaken to independently evaluate geographic vari- ation in health care spending levels and growth among Medicare, Medicaid, privately insured, and uninsured populations in the United States; to make recommendations for changes in Medicare payment systems under the Pa- tient Protection and Affordable Care Act (ACA); and to address whether Medicare payments for physicians and hospitals should be adjusted by a value index that is based on geographic area performance. This report presents findings from commissioned analyses of tradi- tional, fee-for-service Medicare (and to a lesser extent Medicare Advantage, or Part C) and commercial insurance. Because of methodological challenges and data limitations, it does not include separate analyses of variation in the Medicaid and uninsured populations, although estimates of spending by these two groups are included in the study committee’s area-wide estimates of total health care spending. The commissioned analyses and the commit- tee’s research and deliberations led to the following conclusions: xxiii

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xxiv ABSTRACT · Geographic variation in spending and utilization is real, and not an artifact reflecting random noise; it persists across geographic units and health care services and over time. · Variation in spending in the commercial insurance market is due mainly to differences in price markups by providers rather than to differences in the utilization of health care services. · After accounting for differences in the age, sex, and health status of beneficiaries, geographic variation in spending in both Medicare and commercial insurance is not further explained by other benefi- ciary demographic factors, insurance plan factors, or market-level characteristics. In fact, after controlling for all factors measurable within the data used for this analysis, a large amount of variation remains unexplained. · Total spending per Medicare beneficiary and per person with com- mercial insurance is little correlated across hospital referral regions (HRRs); utilization of services between the two populations, how- ever, is much more correlated across HRRs. · Health care decision making generally occurs at the level of the individual practitioner or organization (e.g., hospital or physician group), not at the level of a geographic region. Therefore, a geo- graphically based value index is unlikely to promote more efficient behaviors among individual providers and thus is unlikely to im- prove the overall value of health care. · Substantial variation in spending and utilization remains as units of analysis get progressively smaller (hospital referral region, hospital service area, hospital, practice, and individual provider). · HRR-level quality is not consistently related to spending or uti- lization among either Medicare beneficiaries or the commercially insured. The committee’s first recommendation reflects research and data limita- tions encountered during the course of this study: RECOMMENDATION 1: Congress should encourage the Centers for Medicare & Medicaid Services (CMS), and provide the necessary resources, to make accessing Medicare and Medicaid data easier for research purposes. CMS should collaborate with private insurers to collect, integrate, and analyze standardized data on spending, as well as clinical and behavioral health outcomes, to enable more extensive comparisons of payments and quality and evaluation of value-based payment models across payers.

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ABSTRACT xxv The committee’s remaining recommendations are based on the con- clusions presented above and the committee’s analysis of payment and organizational reforms that would promote the delivery of high-value care while taking account of the ACA and related changes already under way: RECOMMENDATION 2: Congress should not adopt a geographi- cally based value index for Medicare. Because geographic units are not where most health care decisions are made, a geographic value index would be a poorly targeted mechanism for encouraging value improve- ment. Adjusting payments geographically, based on any aggregate or composite measure of spending or quality, would unfairly reward low- value providers in high-value regions and punish high-value providers in low-value regions. RECOMMENDATION 3: To improve value, the Centers for Medi- care & Medicaid Services (CMS) should continue to test payment reforms that incentivize the clinical and financial integration of health care delivery systems and thereby encourage their (1) coordination of care among individual providers, (2) real-time sharing of data and tracking of service use and health outcomes, (3) receipt and distribu- tion of provider payments, and (4) assumption of some or all of the risk of managing the care continuum for their populations. Further, CMS should pilot programs that allow beneficiaries to share in the savings due to higher-value care. RECOMMENDATION 4: During the transition to new payment models, the Centers for Medicare & Medicaid Services (CMS) should conduct ongoing evaluations of the impact on value of the reforms included in Recommendation 3 by measuring Medicare spending and beneficiaries’ clinical health outcomes. CMS should use the results of these evaluations to iteratively improve these payment models. CMS should also monitor how these reforms impact Medicare beneficiaries’ access to medical care. RECOMMENDATION 5: If evaluations of specific payment reforms demonstrate increased value, Congress should give the Centers for Medicare & Medicaid Services the flexibility to accelerate the transition from traditional Medicare to new payment models.

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