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MedPAC Discusses Draft Recommendations on Upcoming Payment Updates

December 4, 2020

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CONTACTS
Mary Mullaney, Director, Hospital Payment Policies
Phoebe Ramsey, Sr. Regulatory Analyst, Quality & Payment Policy
Andrew Amari, Hospital Policy and Regulatory Specialist

The Medicare Payment Advisory Commission (MedPAC) met on Dec. 3-4 to discuss the commission’s draft recommendations related to payment adequacy and payment updates for inpatient and outpatient hospital services and physician services.

Hospital Inpatient and Outpatient Payment Adequacy

MedPAC staff members presented on payment adequacy for inpatient and outpatient hospital services across four key indicators, including beneficiary access to care, quality, hospital access to capital, and Medicare payments compared to hospital costs. Using the most recently available data (from 2019), payment adequacy across these indicators is generally positive. Still, Medicare margins at inpatient prospective payment system hospitals remained negative in 2019 (-8.7%) but increased from -9.3% in 2018. The staff projected that margins will continue to increase to -7% in 2021 due to higher payment updates in coming years. Outpatient payments continued to see growth in 2019 (5.4%), but it was at a slower rate than in previous years, which the commission staff ascribed to services continuing to shift from physician offices to hospital outpatient departments. On both inpatient and outpatient payments, commission staff did not anticipate any long-term changes that would affect payment adequacy beyond the COVID-19 public health emergency (PHE).

MedPAC presented a draft recommendation that Congress update the 2021 Medicare base payment rate for acute care hospitals by 2% for fiscal year 2022. For inpatient payments, the recommended 2% update is in addition to a 0.5% statutory increase, totaling a 2.5% annual update for 2022. Staff also noted that a standing recommendation for the Hospital Value Incentive Program (HVIP), if adopted, would provide an additional 0.8% to the annual inpatient update. 

During the discussion, commissioners generally expressed support for the draft recommendation. However, several questioned whether hospitals’ continued need for personal protective equipment, persistent staffing issues, and the provision of care postponed due to COVID-19, among other issues, might need to be considered in determining payment adequacy beyond the PHE. Other commissioners reminded staff that the 2% update should be considered separately from the HVIP recommendations, given uncertainty over whether Congress will choose to adopt the HVIP recommendations. Commissioners will formally vote on the draft recommendation at the January 2021 meeting.

Physician Services Payment Adequacy

MedPAC staff presented on payment adequacy and updates for physician services, reviewing beneficiary-reported access to care, quality of care, and Medicare payments and providers’ costs. Based on annual surveys, staff stated that most Medicare beneficiaries report good access to care — slightly better than that of privately insured individuals — and that the supply of clinicians continues to grow relative to the increase in beneficiary enrollment. Staff found that while the overall number of clinicians has grown, there has been rapid growth among advanced practice registered nurses and physician assistants and a slight decline in the number of primary care physicians. In terms of quality of care, staff found that there is great geographic variation in rates of hospital use for Medicare beneficiaries and that broadly, there is substantial use of low-value services.

On Medicare payments and providers’ costs, MedPAC staff members presented findings that Medicare payments and input costs are growing. Consistent with prior years, median physician compensation from all payers grew from 2015 to 2019, and there is still significant variation by specialty, with primary care physicians being compensated at significantly lower rates than procedural specialties. Commission staff noted that the changes to evaluation and management reimbursement in the 2021 Medicare Physician Fee Schedule will increase the overall relative value units for primary care physicians, but the commissioners noted that the CMS has more work to do in improving the accuracy of the fee schedule.

The commissioners discussed support for a draft recommendation that Congress should update the 2021 Medicare payment rates in calendar year 2022 for physicians and other health professional services by the amount determined under current law. However, commissioners also acknowledged concerns about the impact of the freeze in payment updates under current law in light of the COVID-19 PHE.

The commissioners will formally vote on the recommendation at the January 2021 meeting.

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