Although Medicare is a national program, it adjusts payments to health care providers to reflect regional differences in wages, rent and other costs.
But in a new report, a panel of experts from the academy’s Institute of Medicine said the payment formulas were deeply flawed.
The system of paying doctors has “fundamental conceptual problems,” and the method of paying hospitals is so unrealistic that almost 40 percent of them have been reclassified into higher-paying areas, the report said.
The report criticizes the current arrangement under which Medicare distributes tens of billions of dollars based on regional variations in wages, rents and other costs in 441 hospital labor markets and 89 payment zones for doctors. Of the physician payment zones, 34 cover entire states.
The panel said Medicare should recognize a single set of 441 payment areas for doctors and hospitals alike.
As a result of such a change, the panel said, “higher-cost areas would be separated from lower-cost areas,” and payments to doctors in metropolitan areas would generally increase, while payments to doctors in some rural areas could be expected to decrease.