How will provider-focused payment reform impact geographic variation in Medicare spending?

Objectives: The Institute of Medicine has recently argued against a value index as a mechanism to address geographic variation in spending and instead promoted payment reform targeted at individual providers. It is unknown whether such provider-focused payment reform reduces geographic variation in spending.

Study Design: We estimated the potential impact of 3 Medicare provider-focused payment policies-pay-for-performance, bundled payment, and accountable care organizations-on geographic variation in Medicare spending across Hospital Referral Regions (HRRs). We compared geographic variation in spending, measured using the coefficient of variation (CV) across HRRs, between the baseline case and a simulation of each of the 3 policies.

Methods: Policy simulation based on 2008 national Medicare data combined with other publicly available data.

Results: Compared with the baseline (CV, 0.171), neither pay-for-performance nor accountable care organizations would change geographic variation in spending (CV, 0.171), while bundled payment would modestly reduce geographic variation (CV, 0.165).

Conclusions: In our models, the bundled payment for inpatient and post acute care services in Medicare would modestly reduce geographic variation in spending, but neither accountable care organizations nor pay-for-performance appear to have an impact.