News Release

Geographic Variation in Health Care: Changing Policy Directions

Narrowly Targeted Geographic Payment Changes Unlikely to Resolve Cost and Quality Problems; Broader System-wide Reforms More Likely to Improve Health Care Efficiency and Quality

Written by researchers at the Center for Studying Health System Change (HSC), the analysis reviews evidence and key inferences from research identifying wide geographic variation in fee–for–service Medicare spending and service utilization. A major conclusion of the early research was that care is provided much more efficiently in some areas of the United States than in others, prompting some to call for modifying payment policies and beneficiary cost sharing in high–cost areas to reduce inefficient spending.“More recent research, employing improved data and analytical approaches, indicates that unwarranted geographic variation is less extensive than believed. These findings support the emerging view that payment reforms narrowly targeted by geography would be ineffective in addressing local or national problems of health care costs and quality. A more direct and productive approach to reducing unwarranted variation in health care use and spending would be to focus policy changes on broader payment reform and oversight that can drive greater efficiency in health care delivery in all geographic areas,” according to the analysis.

An array of initiatives in the health reform law, including determining what treatments work best for which patients in real–world settings—known as comparative effectiveness research—provides “a framework for building on what has been learned about factors that contribute to inefficient health care delivery by exploring, designing, testing and implementing new approaches to organizing and paying for care,” the analysis states.

“While there are no simple paths to improving the efficiency and value of health care, potentially productive avenues include improving the accuracy of fee–for–service payment systems while moving toward new payment models. Improvements to the fee–for–service system might include fixing distortions in the Medicare payment schedules that make certain services relatively more profitable than others; adjusting payments so that more–expensive services that are no more effective than alternatives are reimbursed at the level of the less–expensive service; and altering payments to encourage use of more–effective ser­vices and discourage use of less–effective ones,” the analysis states.

“Alternative payment models might include rewarding providers for care quality and efficiency—known as pay for performance—or paying groups of providers a flat fee to care for patients with certain conditions to create incentives to coordinate care and improve efficiency. Other possible policy paths include measuring and publicly reporting differences in quality of care across regions and, more importantly, across providers, and increasing enforcement against fraudulent and abusive billing practices,” the analysis concludes.

Written by Jill Bernstein, Ph.D., an HSC senior policy analyst; and James D. Reschovsky, Ph.D., and Chapin White, Ph.D., both HSC senior researchers, the new Policy Analysis—Geographic Variation in Health Care: Changing Policy Directions .

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The National Institute for Health Care Reform (NIHCR)is a nonpartisan, nonprofit 501 (c)(3)organization created by the International Union, UAW; Chrysler Group LLC; Ford Motor Company; and General Motors. Between 2009 and 2013, NIHCR contracted with the Center for Studying Health System Change (HSC) to conduct high-quality, objective research and policy analyses of the organization, financing and delivery of health care in the United States. HSC ceased operations on Dec. 31, 2013, after merging with Mathematica Policy Research, which assumed the HSC contract to complete NIHCR projects.