WASHINGTON — Medicare uses inaccurate, unreliable data to pay doctors and hospitals, the National Academy of Sciences said Wednesday.
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.
White House officials agreed to commission the study in March 2010 — in the last tense days of Congressional debate over President Obama's health care overhaul — as a way to secure the votes of lawmakers from Iowa, Minnesota, Wisconsin and other states who believed their doctors and hospitals had long been shortchanged by Medicare. As a result of such underpayments, the lawmakers said, many parts of their states have difficulty recruiting doctors, nurses and other practitioners, and consumers often have difficulty finding specialists.
However, the new study says that geographic adjustments should be used to increase the accuracy of Medicare payments, not to address shortages of providers in some places.
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.
Michael D. Abrams, executive vice president of the Iowa Medical Society, said he was "a little surprised" and disappointed that the panel did not acknowledge that Medicare overemphasized the importance of geographic differences in office rents.
"You could argue that it costs more to deliver health care in rural America, in sparsely populated areas, than in densely populated areas," Mr. Abrams said.
"Office space is a lot more expensive in Brooklyn, N.Y., than in Brooklyn, Iowa," he said, but Medicare's payment formula gives too much weight to such differences.
Mr. Abrams said he was concerned that the panel's recommendations could "make things worse" for many doctors and patients in his state. The panel will analyze the impact of its recommendations in a report next spring.
By the end of this year, under the new health care law, the secretary of health and human services must send Congress a plan to revise the way Medicare adjusts payments to reflect regional differences in hospital wages.
Any such plan could have major economic and political implications. Wages account for about two-thirds of hospital costs, the panel said, and regional differences are substantial, with a registered nurse paid almost twice as much per hour in San Francisco as in Springfield, Mo.
Under the new health law, geographic adjustments may not increase total costs to Medicare, so that an increase in payments to one hospital or group of hospitals must generally be offset by decreases in payments to others.
Frank A. Sloan, a professor of economics at Duke University and chairman of the study panel, said Medicare needed to find a new source of data on commercial office rents. The current measure, based on rent for a two-bedroom apartment, does not accurately reflect the prices doctors face, he said.
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