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  • Washington Highlights

    MedPAC Discusses Short Stay Policies, RAC Reform, and Drug Payment Policies

    Len Marquez, Senior Director, Government Relations

    The Medicare Payment Advisory Commission (MedPAC) met March 5-6 to discuss hospital short stay policy issues, Medicare Part B drug payment policy issues, the Health Resources and Services Administration (HRSA) 340B Drug Pricing Program, and Medicare payment policies, among other topics.

    The meeting commenced with a session on short stay policy issues, at which the commission discussed draft recommendations that focused on Recovery Audit Contractor (RAC) reform and reducing beneficiary liability and confusion around observation status and short inpatient stays. The recommendations the commission plans to vote on in April include:

    • Updating the RAC program to target reviews on hospitals with the most short stays, tying the RACs’ contingency fee to a denial overturn rate, and shortening the RAC look-back period;
    • Evaluating a formulaic payment policy penalty on hospitals with “excess” levels of short inpatient stays to replace RAC reviews of these short stays;
    • Expanding the three-day hospital stay requirement for skilled nursing facilities (SNF) coverage to include outpatient observation stays, as long as one day is spent as an inpatient;
    • Requiring beneficiary notification of outpatient observation status; and
    • Packaging payment for self-administered drugs during outpatient observation stays under the hospital outpatient prospective payment system.

    In a statement applauding the commission for its “reasoned, considered approach to addressing short stay payments,” AAMC President and CEO Darrell G. Kirch, M.D., urges, “the two-midnight rule, and short inpatient stays do not lend themselves to a simple payment solution without RAC program reform. It is not reimbursement that governs physicians’ admissions decisions. Rather, it is physicians’ clinical judgment of what is medically necessary for the patient.”

    Notably, the commission seemed to move away from proposing or further evaluating a payment solution to issues surrounding short stays. While commissioners generally supported the package of recommendations, Commissioner Kathy Buto pointed out that a formulaic approach to targeting a high volume of short stays could undermine the longstanding reliance on review based on medical necessity. In light of concerns raised about unintended consequences and disproportionate impact, MedPAC Executive Director Mark Miller, Ph.D., suggested looking into a risk adjustment for such targeting.

    MedPAC Chair Glenn Hackbarth, J.D., echoed concerns raised by Commissioner Herb Kuhn that the discussion around short stays did not specifically address the Center for Medicare and Medicaid Services (CMS) policy, known as the “two-midnight rule.” Several commissioners expressed that the report chapter should address how the two- midnight rule would be handled in the context of this package of recommendations.

    Chairman Hackbarth agreed that an evaluation of the pros and cons associated with the two-midnight rule should be included in this section of the report. The proposed text will be discussed during the April 2-3 meeting.

    The commission also addressed Medicare Part B drug payment policy issues. A MedPAC staff presentation provided contextual background on Part B covered drugs and the average sales price (ASP) system; policy alternatives to Medicare’s payment of 106 percent of the ASP; and a history of the 340B drug pricing program that included estimates of discounts and Medicare payments under the program.

    MedPAC considered whether adopting flat rate margins on Part B drugs (e.g., 100 percent of ASP plus $24 or 102.5 percent of ASP plus $14) as a budget-neutral policy alternative to ASP plus 6 percent would better incentivize the use of lower-priced drugs. Commissioners tended to agree that given the lack of consensus around the intended purpose of the 6 percent margin on Part B drugs, which could incentivize use of higher cost drugs, these alternatives may make policy sense.

    With respect to the 340B drug pricing program, the commission again grappled with the statutory intent behind the program, whether beneficiary coinsurance is appropriately tied to the Medicare payment irrespective of the 340B discount, and the jurisdictional issues surrounding MedPAC’s authority to make recommendations. MedPAC staff indicated plans to include separate chapters in its report on the mechanics of the 340B program, Part B drug pricing, and least costly alternative (LCA).

    The meeting also included a presentation on synchronizing Medicare payment policy across payment models, which focused on the beneficiary perspective on this issue. The ensuing discussion of this topic primarily focused on beneficiary choice between fee-for-service and Medicare Advantage premiums, highlighted substantial geographic variation, and considered the extent to which this variation is equitable.

    MedPAC’s meeting concluded on March 6 with discussions of generic prices and the role of non-preferred generic tiers in Part D, and sharing risk in Part D.