MedPAC Recommends Full Market
Basket Update for Hospitals; 2.5 Percent Update for Physicians
January 16, 2004- At its Jan. 14-15 meeting, the Medicare
Payment Advisory Commission (MedPAC)
approved its recommendations on Medicare payment updates
and other issues that will be included in the Commission's
March 2004 Report and Recommendations to the Congress. Unlike
past years, the Commission did not address indirect medical
education (IME) payments or other issues specific to teaching
hospitals.
The Commission recommended that base rates under the inpatient
prospective payment system (PPS) be raised in fiscal year
(FY) 2005 by the increase in the hospital market basket. This
recommendation is consistent with the FY 2005 update currently
in law, which was set by the recently passed Medicare prescription
drug law.
MedPACs recommendation is higher than what the Commission's
update framework had suggested, and which was presented and
discussed at the Commission's December meeting. The update
framework included a reduction to the market basket increase
due to a productivity adjustment factor, which assumes that
hospitals will constrain their costs due to productivity improvements.
In approving its recommendation, Commission Chair Glenn Hackbarth
noted that the Commission was deciding to forego a productivity
adjustment for FY 2005 because of several factors, including
Medicare payment uncertainties associated with the numerous
provider payment changes in the Medicare prescription drug
bill, recent spikes in cost growth, and a sharp decline in
the overall Medicare margin for hospitals (which reflects
payments and costs associated with Medicare inpatient and
outpatient services, as well as other Medicare services provided
by the hospital), from 4.1 percent in 2001 to 1.7 percent
in 2002.
Following a parallel line of thinking that was applied to
the inpatient update decision, the Commission recommended
a full market basket increase update for hospital outpatient
payments, which is consistent with current law. However, the
Commission also recommended that outlier payments under the
outpatient PPS be eliminated, citing data indicating that
the majority of outlier payments were associated with low-cost
outpatient services, which do not need outlier payment protection.
This recommendation, if it were ever to be implemented by
Congress, could have important implications for major teaching
hospitals because these institutions receive significant outpatient
outlier payments.
MedPAC staff reported on three issues of concern to the physician
community: payment adequacy; cost changes in 2005; and an
appropriate payment update for calendar year 2005. The Medicare
prescription drug law sets the CY 2005 conversion factor (CF)
update at "not less than 1.5%." After a discussion
of the update and its implications for beneficiary access,
the commissioners unanimously voted to recommend a 2.5 percent
update for CY 2005, which represents CMS projected inflation
of 3.4 percent less 0.9 percentage points to reflect anticipated
productivity gains.
Information:
Karen Fisher, Sr. Director, Health Care Affairs
AAMC Health Care Affairs
kfisher@aamc.org
(202) 862-6140
Denise Dodero, Sr. Director, Health Care Affairs
AAMC Health Care Affairs
ddodero@aamc.org
(202) 828-0493
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