Study recommends changes to the way Medicare payments factor in geography

The Institute of Medicine said Wednesday that Congress and the administration should standardize the labor markets and the wage and benefits indexes it uses when adjusting Medicare payments for hospitals and physicians based on local costs.

The IOM recommendations are the first of two reports on geographic adjustments required by the healthcare reform law. More than 30 House Democrats from the Midwest and Pacific Northwest demanded a review of the way Medicare adjusts payments for providers because of concerns that providers in their districts are getting stiffed.

Wednesday's report makes several recommendations:

• Medicare should use the same labor market definition - metropolitan statistical areas - when determining adjustments for hospitals and physicians;

• The wage index should be based on data from the Bureau of Labor Statistics, which will require changing the law; and

• Data from all occupations in the healthcare workforce should factor into the adjustments.