MedPAC Recommends Differential Hospital Updates
January 25, 2002 - At its Jan.
16-17 meeting, the Medicare Payment Advisory Commission (MedPAC)
recommended that, for FY 2003, the standardized "base" payment
for Medicare inpatient cases be updated by the increase in the hospital
market basket (currently estimated at 2.9 percent) less 0.55 percentage
points for hospitals located in large urban areas (more than 1 million
population) and by the full market basket increase for all other hospitals.
Current law sets the update at the market basket increase less 0.55
percentage points for all hospitals.
The standardized payment for hospitals in large urban areas is about
1.6 percent higher than the base payment for hospitals in other urban
and rural areas. In response to a MedPAC staff statement that a 1997
analysis indicated no significant difference in costs between large
urban and all other hospitals, the Commission approved a recommendation
to eliminate gradually the standardized payment differential. The higher
update for other urban and rural hospitals would bridge the gap by about
a third. Hospitals in large urban areas tend to have higher Medicare
margins than other hospitals, but also have lower total margins.
For hospital outpatient departments, the Commission recommended that
the base payment under the Medicare outpatient prospective payment system
be increased by the full market basket increase. MedPAC also recommended
that the Centers for Medicare and Medicaid Services (CMS) avoid basing
payments for new drugs and devices solely on costs. Currently, hospitals
receive the costs of these items until enough national data is obtained
to be included in the calculation of the ambulatory payment classification
(APC) rates.
The Commission recommended that Medicare physician payments be increased
by 2.5 percent for calendar year 2003, as well as other changes to the
payment methodology. The commission also made update recommendations
for home health, skilled nursing, and outpatient dialysis services.
At the meeting, MedPAC also discussed the level of the indirect medical
education (IME) adjustment. The adjustment, set at 6.5 percent for every
10 percent increase in the resident-to-bed ratio, will be reduced to
5.5 percent in FY 2003 unless current law is changed. The Commission
discussed whether the level should be reduced even further because,
according to staff analyses, the empirical level of the adjustment is
3.2 percent. They ultimately decided not to comment on the issue. Several
Commissioners expressed concern about the scheduled cut in FY 2003,
citing major teaching hospitals low total margins. According to MedPAC,
in 1999 (the most recent data available), total margins for major teaching
hospitals were 2.4 percent, compared to 4.0 percent for other teaching
and nonteaching hospitals.
Information: Karen Fisher, Senior Associate Vice President
AAMC Health Care Affairs
kfisher@aamc.org
(202) 862-6140
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