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    MedPAC Meets to Discuss Fee for Service Payment Adequacy and Updates


    Brad Cunningham, Sr. Regulatory Analyst, Graduate Medical Education
    Mary Mullaney, Director, Hospital Payment Policies
    For Media Inquiries

    The Medicare Payment Advisory Commission (MedPAC) staff met on Dec. 8 and 9 to discuss its draft recommendations for the Medicare fee-for-service (FFS) payment updates that will be included in their March 2023 Report to Congress. By law, each year the commission reviews Medicare FFS payment policies and makes payment update recommendations. The MedPAC chairman stated that this year’s update analysis was challenging and complicated given the COVID-19 public health emergency.  

    For hospital inpatient and outpatient services and supporting Medicare safety-net hospitals staff assessed payment adequacy based on access to care, quality of care, and hospital financial health through 2021. Staff noted that beneficiaries’ access to care had remained the same or improved. In 2021, inpatient stays declined per beneficiary, but average length of stay increased. There was an increase in outpatient services compared with inpatient services that staff attributed to a shift in site of care or beneficiaries foregoing care. Overall, the quality of care to Medicare beneficiaries saw mixed trends across different measures.  

    Aggregate Medicare margins increased in 2021 to pre-pandemic levels but there continues to be substantial variation among hospitals. Staff found that in 2021, median hospital Medicare margins excluding relief funds were negative 7%. Staff presented the chairman’s draft recommendation for fiscal year 2024 payment update, which stated that Congress should “update the 2023 Medicare base payment rates for general acute care hospitals by the amount under current law plus 1 percent.” 

    Staff also raised an ongoing recommendation that would both change the calculation of safety-net hospital payments as well as increase the total safety-net payment pool for hospitals. That draft recommendation would ask Congress to begin to redistribute disproportionate share hospital and uncompensated care payments through a proposed safety-net index (SNI) that differs from the current add-on formula and would distribute as an add-on payment to Inpatient Prospective Payment System and Outpatient Prospective Payment System claims based on hospitals’ SNI. MedPAC recommended that these amounts should be excluded from the Medicare Advantage benchmark calculations and that the pool should be increased by $2 billion.  

    Overall, commissioners supported the draft recommendations. However, many commissioners commented that under the SNI proposal there will be winners and losers that should be carefully considered and questioned the impact on beneficiaries. Some commissioners also supported specifying the SNI definition as specific to Medicare and that it does not change the current definition of safety-net hospitals. Commissioners suggested referring to the SNI proposal as the Medicare Hospital Safety-Net Index.  

    MedPAC staff also discussed an assessment of payment adequacy and updating payments for physicians and other health professional services, taking into consideration Medicare beneficiaries’ access to care, quality of care, and clinicians’ revenue and costs. They found that some Medicare beneficiaries reported problems obtaining care, but Medicare beneficiaries’ access to care was equal to or better than privately insured people. As another indicator of access to care, staff noted that the supply of clinicians billing Medicare was stable with a 2.5% per year growth in clinicians billing under the physician fee schedule between 2016 and 2021. Commission staff cautioned that assessing the quality of care in 2021 was difficult because of the effects of the COVID-19 pandemic. MedPAC staff found that the Medicare Economic Index (MEI), which measures clinicians’ input costs, is projected to grow rapidly with increases of 4.4% in 2022, 3.5% in 2023, and 2.5% in 2024 — much faster than updates to the physician fee schedule services. Staff concluded that most indicators suggest payment rates have been adequate, but rising input costs are a concern. 

    Commission staff presented two draft recommendations that were largely supported by the commissioners. First, for calendar year (CY) 2024, Congress should update the 2023 Medicare base payment rate to physicians and other health professional services by 50% of the projected increase in the MEI. The Centers for Medicare & Medicaid Services currently forecasts a 2.5% increase to the MEI for CY 2024, meaning that the draft recommendation would yield a 1.25% base payment increase.  

    The second draft recommendation was that Congress should enact a non-budget neutral add-on payment for services provided to low-income Medicare beneficiaries. As proposed, the add-on payment would not be subject to beneficiary cost sharing. The draft recommendation for an add-on payment would be different based on provider; primary care clinicians would receive a 15% add-on payment and nonprimary care clinicians would receive a 5% add-on payment.