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  • Washington Highlights

    MedPAC on Part B Drugs, Medicare Pay Policies, Behavioral Health, and Telehealth


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

    The Medicare Payment Advisory Commission (MedPAC) met on April 13 and 14 to discuss a variety of policy issues, including recommendations for the Medicare wage index, Medicare Part B drug prices, aligning payment across settings, telehealth, and behavioral health. Many of the discussions were in follow-up to previous dialogues on these proposals [refer to Washington Highlights, Sept. 9, 2022, and March 3]. 

    Payment for High-Priced Part B Drugs 

    MedPAC staff presented the following chair’s draft recommendations that would change how Medicare pays for drugs covered under Part B. Staff reported that all proposals are estimated to decrease Medicare spending, reduce beneficiary cost sharing for Part B drugs, and not negatively impact beneficiaries’ access to medications. Commissioners unanimously voted in support of the following draft recommendations. 

    The first draft recommendation asked Congress to require the secretary of Health and Human Services to cap Medicare payment for Part B drugs and biologics approved under the Food and Drug Administration accelerated approval program based on certain specified criteria, including “excessive” pricing relative to the upper bound estimates of value. 

    The second draft recommendation asked Congress to give the secretary the authority to establish a single average sales price-based payment rate for Part B drugs and biologics with similar effects. 

    The final draft recommendation asked Congress to require the secretary to reduce the add-on payments for costly Part B drugs and biologics paid based on average sales price in order to minimize the relationship between average sales price and add-on payments. Further, the secretary should eliminate the add-on payments for Part B drugs and biologics paid based on wholesale acquisition cost.   

    Medicare Wage Index  

    The commission continued to emphasize its concerns that the current Medicare wage index does not accurately reflect differences across geographic areas and creates inequities across providers. Commission staff cited Inpatient Prospective Payment System hospital data deviating from marketwide labor costs, broad areas that mask differences in labor costs and create large differences across adjacent areas, and exceptions that exacerbate inaccuracies and inequities as the sources of their concerns with the current Medicare wage index. The commissioners voted unanimously to finalize the chair’s draft recommendation. 

    MedPAC staff presented the chair’s draft recommendation which calls on Congress to repeal the existing Medicare wage index, including current exceptions, and require the secretary to phase in a new Medicare wage index system for hospitals and other types of providers. The recommended new system would: (1) use all employer, occupational-level wage data, with different occupation weights for each provider type, (2) reflect local area-level differences in wages between and within metropolitan areas and statewide rural areas, and (3) smooth wage index differences across adjacent local areas.  

    Aligning Payment Rates Across Ambulatory Settings  

    MedPAC also revisited its discussion on aligning fee-for-service payment rates for the same service across ambulatory settings, with MedPAC staff presenting the chair’s draft recommendation which asks Congress to more closely align payment rates across ambulatory settings for selected services that are safe and appropriate to provide in all settings and when doing so does not pose a risk to access. Commission staff stated the proposal would have no direct effect on program spending. They did note a potential indirect effect on provider consolidation that could result in a reduction in the shift of billing from the Physician Fee Schedule to the Outpatient Prospective Payment System and thus lower spending. Staff discussed that some providers may experience increased financial pressure due to the change in policy, but overall, they do not expect the policy to affect providers willingness or ability to furnish ambulatory services to beneficiaries. Beneficiaries would see lower cost sharing for some services but higher for others and no expected effect on access to care. However, commissioners again voiced concerns around how decreasing payment simply based on volume and site of service could result in beneficiaries not having access to those services, specifically in rural areas. They also noted that patient acuity needed to be considered when selecting procedures for which payments would be aligned.  

    The commission voted unanimously to finalize the chair’s draft recommendation. 

    Mandated report to Congress, Telehealth in Medicine 

    The Consolidated Appropriations Act, 2021 (P.L. 116-200) required the commission to submit a report to Congress by June 2023 regarding, in part, the utilization of telehealth services during the public health emergency (PHE). The commission staff presented findings from analysis of particular Medicare claims data regarding quality, access, and cost for telehealth encounters during the second half of 2019 (before the PHE) compared to data from the second half of 2021 (during the PHE). To measure quality, staff compared risk-adjusted ambulatory care sensitive (ACS) hospitalization rates across low- and high- telehealth intensity hospital service areas (HSAs) and ACS emergency department visits per 1,000 beneficiaries. Staff found that risk-adjusted rates of ACS hospitalizations decreased for both groups of HSAs and that there was no association between telehealth intensity and risk-adjusted ACS emergency department (ED) visits. Additionally, HSAs with high-telehealth intensity did not show improved rates of ACS hospitalizations or ED visits compared with HSAs with low-telehealth intensity. Total clinician encounters per beneficiary decreased across high intensity and low intensity telehealth HSAs, and staff did note that high-intensity HSAs appeared to be associated with increased rates of total clinician encounters. Staff found that the total cost of care per beneficiary increased across both sets of HSAs but increased more for high-intensity HSAs. As to the analysis of the data, staff acknowledged that the underlying data set was confounded by COVID-19 and stated that they could not assess causality.  

    Commissioners were largely supportive of the work to analyze telehealth services during the PHE but also noted that there are differences in data sets across different years of the PHE, and there could be differences in usage based on locality. The commission staff presented previously on the use of telehealth services, Medicare expenditures on telehealth, and Medicare payment policy for telehealth services and alternative approaches under the Physician Fee Schedule. 

    Congressional Request: Behavioral Heath in Medicine 

    In response to a January 2022 congressional request by the chairman of the House Committee on Ways and Means, the commission staff analyzed behavioral health services trends under the Medicare program. Specifically, this session focused on inpatient psychiatric facilities (IPFs), the utilizations of IPFs, Medicare spending on IPF stays, and the supply of IPF services and analyzed the population demographics for Medicare beneficiaries that are at or near the 190-day Medicare stay limit in free-standing psychiatric facilities. Staff found that from 2019 to 2021, the total number of IPFs decreased from 1,540 to 1,480 facilities, and from 2019 to 2021, the number of IPF stays per 1,000 fee-for-service (FFS) beneficiaries decreased by 15.4% — compared to a decrease of 5.7% from 2017 to 2019. For utilization, there was a wide range of occupancy rates across IPFs, with free-standing government IPFs having the highest occupancy rates and IPFs that serve patients with the most severe mental illnesses currently experiencing high occupancy rates as well. Data showed that the Medicare FFS beneficiaries that utilized IPF services were generally more vulnerable and required a greater intensity of care than all other Medicare FFS beneficiaries. IPF beneficiaries differed across the type of IPF as well, with hospital-based IPF patients tending to be older and have higher risk scores, higher rates of dementia, and other chronic conditions.  

    Staff also highlighted that by statute the Medicare program limits the lifetime number of days a patient may be reimbursed for at 190 days for free-standing IPFs. Characteristics for patients at or near the 190-day limit showed they are more likely to be disabled and have low income. Of the IPFs surveyed, many felt that the 190-day limit was insufficient for patients with chronic mental illnesses.  

    Lastly, data showed that there was a wide variation in aggregate Medicare margins for IPF services in 2021, with hospital-based nonprofit, free-standing nonprofit, and hospital-based for-profit IPFs all showing negative margins. Only for-profit, free-standing IPFs showed a positive margin which staff attributed to lower costs due to a variety of factors such as more restrictive admission requirements.