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MedPAC Discusses Medicare Payment Policy and COVID-19 Impact on Payment Adequacy

September 3, 2021

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Andrew Amari, Hospital Policy and Regulatory Specialist

The Medicare Payment Advisory Commission (MedPAC) met on Sept. 2-3 to discuss the short-term and long-term context for Medicare payment policy, as well as the impact of the COVID-19 public health emergency (PHE) on Medicare payment adequacy.

Context for Medicare Payment Policy

MedPAC staff presented on the short-term context for Medicare payment policy as it relates to the ongoing COVID-19 PHE and its impact on Medicare beneficiaries. They noted that the age 65 and older population has accounted for only 14% of COVID-19 cases but approximately 80% of COVID-19 deaths in the United States. Further, staff noted that several Medicare subgroups have had disproportionately high rates of COVID-19, including the age 85 and older population, dual-eligible beneficiaries, and end-stage renal disease beneficiaries. Despite these issues, they emphasized that the effect of the COVID-19 PHE on Medicare beneficiaries is diminishing, citing growing vaccination rates, improving access to care, and declining levels of beneficiaries delaying or foregoing care.

Staff also provided an overview of long-term context for Medicare payment policy, emphasizing the recent findings of the Medicare Board of Trustees’ 2021 annual report [refer to Washington Highlights, Sept. 2]. Notably, they cited the report’s estimate that the Medicare Hospital Insurance (HI) trust fund is projected to be insolvent by 2026, and that to extend the HI trust fund’s solvency for another 25 years, either the payroll tax must be increased from 2.9% to 3.7% or Part A spending must be decreased by 18% ($70 billion). Among other findings, staff noted that health care spending continues to grow as a share of the country’s gross domestic product and that spending per beneficiary is growing faster in Medicare Advantage than both fee-for-service (FFS) Medicare and Part D.

In the discussion portion of the presentation, commissioners expressed concern over increased Medicare spending and the long-term solvency of the HI trust fund. Several commissioners questioned the effectiveness of addressing the growth in spending primarily through reducing payment rates for hospitals and physicians. To this end, they requested that staff provide additional detail on alternatives to reduce spending growth, as well as more data on the volume and intensity of services to identify opportunities to price services more efficiently.

Effects of COVID-19 on Medicare Payment Adequacy  

MedPAC staff presented on the COVID-19 PHE’s impact on several payment adequacy indicators used in determining 2023 payment updates to the base rates for Medicare’s FFS payment systems. Notably, they indicated that the PHE has had significant impact on providers, impacting capacity, supply, volume of services, and overall profits. The PHE has also altered acuity and mix of patients, as well as increased mortality rates, which all affect MedPAC’s measures of payment adequacy, including both access to capital and beneficiary access to care. To date, these issues have been addressed through a variety of regulatory and legislative actions, including advanced payments, loans, and a variety of temporary regulatory flexibilities for providers. Staff reminded commissioners that 2020 data will be used to inform updated recommendations for 2023 and that the 2020 data may not provide a representative picture of Medicare payment adequacy due to the impact of the PHE.

In the discussion portion of the session, commissioners generally agreed that in recommending payment updates for 2023, MedPAC will need to identify and separate the permanent effects of the PHE on providers from the temporary effects. They suggested permanent effects could be reflected in the payment updates, and most of them supported the potential use of additional targeted payment updates for severely affected provider types and safety-net hospitals to address the temporary effects of the PHE in 2023. Finally, commissioners acknowledged that the high degree of uncertainty present in these projections may require a more extreme base payment update in 2023 than is typically recommended. Staff will present on its payment adequacy analyses at the December meeting.

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