Some hospitals should get less reimbursement money from the Medicare healthcare program based on geographic location, according to a report commissioned by the U.S. government.

Currently, Medicare reimbursements for hospitals and other health care providers depend on the rent or wages in the location where they operate.

But almost 40 percent of U.S. hospitals get exceptions to how their adjustments are calculated, said a report from the Institute of Medicine (IOM) on Wednesday.

“The fact that there are so many exceptions undermines confidence that the system is doing what it intends to do,” said Bruce Steinwald, an independent consultant and member of the committee that wrote the report.

The report was commissioned by the U.S. Department of Health and Human Services and the U.S. Congress after complaints that the current system of geographic adjustments was not transparent or accurate.

The Medicare program provides health insurance to 47 million elderly and disabled Americans and is the largest single payer of health care services in the United States. The Congressional Budget Office estimates Medicare payments in 2010 were some $500 billion.

The program has come under fire recently as the U.S. government struggles with a ballooning budget deficit. Medicare and Medicaid, the federal health program for the poor, eat up about a quarter of all government spending.

The report’s findings will not affect the total amount spent on Medicare, as federal law requires geographic adjustments to be budget neutral, which means any increase in the amount paid to one hospital must be offset by a decrease to others.

However, they could impact the Medicare reimbursements paid to large hospital operators such as HCA Holdings, Community Health Systems, and Lifepoint Hospitals.

Salaries and benefits make up one of the largest costs of providing care, and the IOM report suggests the government should use the most up-to-date data available in calculating how much to pay each hospital or doctor, rather than relying on hospitals’ own calculations or surveys.

“As the criticism we heard from a range of health care providers indicates, there is significant skepticism about the fairness and accuracy of how adjustments are currently being determined,” said committee chairman Frank Sloan, a professor of health policy and economics at Duke University.

“This report’s recommendations will increase the likelihood that the geographic adjustments reflect reasonably accurate measures of regional differences in expenses.”

The report is the first in a series of three that will look at geographic adjustments in Medicare and how they affect health care quality, population health, and the distribution of the health care work force.

To take effect, the report’s findings must be passed into law by Congress.

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(Reuters)