MedPAC Issues Recommendations for Medicare Payment Issues

The Medicare Payment Advisory Commission (MedPAC) has issued its annual report to Congress recommending updates and changes to Medicare payment policies. The report’s Executive Summary identifies its focus as “the Commission’s recommendations for the annual payment rate updates under Medicare’s various [fee-for-service] FFS payment systems and aligning relative payment rates across those systems so that patients receive efficiently delivered, high-quality care.”
Spending analysis The 14-chapter report, March 2015 Report to the Congress: Medicare Payment Policy, provides analysis of Medicare and overall health care spending and how it affects federal health care program spending; “trends in enrollment, plan offerings, and payments in Medicare Advantage plans”; and trends in prescription drug plan enrollment and plan offerings. The report cites an oft-noted trend in Medicare spending—while spending per beneficiary has slowed to an increase “of less than 1 percent per year on average,” the overall Medicare spending “is projected to increase 5 percent to 7 percent annually over the next decade as the baby-boom generation ages into Medicare.” Compounding the costs generated by the increase in beneficiaries from the current 54 million to a projected 80 million in 2030 is the fact that many beneficiaries have multiple chronic conditions.
Managing fee-for-service while it remains In some areas, the report relies on prior recommendations or recommends no new payment update for 2016. For example, it reiterates prior recommendations for hospital inpatient and outpatient and home health. It also did not recommend any update for inpatient rehabilitation facility (IRF) services or ambulatory surgical center (ASC) payment rates for 2016. As to ASCs, the commission noted that it could not “calculate a Medicare Margin” and assess payment adequacy because ASCs do not report cost data relating to ASC services for Medicare beneficiaries. So it recommended CMS “begin collecting cost data from ASCs without further delay.” The report indicates payment reform and delivery-system reform are both necessary to address the problem that fee-for-service payment models reward the provision of more services regardless of the value of those services. MedPAC calls for monitoring of new delivery models such as ACOs, medical homes and bundling but acknowledges that fee-for-service will remain in some form for some period of time and thus must “be managed carefully.” Noting that change will come slowly, MedPAC’s report warns: “This fact alone makes unit prices—their overall level, the relative prices of different services in a sector, and the relative prices of the same service across sectors—an important topic. In addition, constraining unit prices could create pressure on providers to control their own costs and to be more receptive to new payment methods and delivery system reforms.”
Adjusting the site of service incentives A major theme throughout the recommendations addresses differing payments depending on the site of service. Hoping to provide a disincentive for providers to shift services to more highly reimbursed sites of service, MedPAC espouses site-neutral payments. Specifically recognizing the difference in payment rates for services rendered in a hospital out-patient department (HOPD) versus a physician office, and the incentive that difference creates for hospitals to acquire physician offices and then convert them to HOPDs, the report calls for uniform payment rates. The report recommends that HHS “[a]djust payment rates for certain services provided in HOPDs so that they more closely align with the rates paid in physician offices for certain select services.” And with regard to post acute care, MedPAC notes reform will take time as data is collected under the Improving Medicare Post-Acute Care Transformation (IMPACT) Act of 2014. Therefore, it recommends that HHS develop site-neutral payments between IRFs and skilled nursing facilities (SNFs) for specific conditions. Specifically, the Commission recommends that the IRF base rate match the average SNF payment per discharge for the condition and implement this policy over three years.
SGR must go Addressing the sustainable growth rate (SGR) formula, the fact that the 21.2 percent fee cut is due to take effect this April and the prior years’ reductions have not been made, the Commission “reiterates its long-standing position that the SGR should be repealed” and emphasizes that “[t]he budgetary cost of repeal remains near historic lows, providing a clear opportunity.” The Commission recommends the following SGR reforms:

• implement a 10-year plan of legislative updates instead of the SGR (and “higher updates for primary care services than for other services”);
• “[c]ollect data to improve the relative valuation of services”;
• “[i]dentify overpriced services and rebalance payments”;
• “incentivize ACO participation by “creating greater opportunities for shared”

MedPAC’s entire report can be reviewed on its website at www.medpac.gov. Takeaway: Opposition to SGR continues and neutral site-of-service payments are promoted to fix incentives that increase costs.