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  • Washington Highlights

    MedPAC Releases March 2023 Report to Congress


    Mary Mullaney, Director, Hospital Payment Policies
    Katherine Gaynor, Hospital Policy and Regulatory Analyst
    For Media Inquiries

    The Medicare Payment Advisory Commission (MedPAC) released their March 2023 report to Congress. This report contained several chapters that cover recommendations for a broad range of Medicare topics including assessing payment adequacy for fee-for-service (FFS) Medicare, hospital inpatient and outpatient services, physician and other health professional services, and other Medicare-related services. The report also contained individual status reports on the Medicare Advantage (MA) program and Medicare Part D.

    As required annually, the commission must make recommendations for updates to Medicare’s payment systems, specifically focusing on what factors may affect payments in 2024. The report outlined the commission’s plans for determining recommendations and indicated they plan to utilize data from 2021 and fill in gaps with data from 2022 when available. However, the commission has yet to vote on a final recommendation on this for this year.

    Hospital Inpatient and Outpatient Services

    Chapter 3 of the March 2023 report focused on hospital inpatient and outpatient services. The commission found that in 2021, Inpatient Prospective Payment System (IPPS) hospitals all-payer operating margins reached a record high of 8.7%. However, IPPS hospitals’ Medicare margins were reported to be -6.2% with federal relief funds and -8.3% without. Also, the commission noted that 2022 input cost for hospitals did increase and will likely create lower Medicare margins in 2023, estimating them to be about -10%, which the commission cited is similar to 2017. Quality of care measures were a bit scattered with FFS beneficiaries’ risk-adjusted hospital readmission rates improving, while risk-adjusted hospital mortality rates remained higher than 2019 and patient experiences declined. With these findings in mind, the commission recommended that Congress should update the 2023 Medicare base payment rates for general acute care hospitals by the amount specified in current law plus 1% for fiscal year (FY) 2024.

    MedPAC also provided recommendations around payment for Medicare safety-net hospitals as they do not believe the 1% will be sufficient to ensure financial viability for these institutions. The commission also recommended that in FY 2024, Congress should implement a number of additional changes. Beginning in 2024, the commission recommended a transition to redistribute disproportionate share hospital and uncompensated care payments through the Medicare Safety-Net Index (MSNI). To accomplish this recommendation, MedPAC also recommended that $2 billion be added to the MSNI pool and that FFS MSNI payments be scaled in proportion to each hospital’s MSNI in order to distribute the funds through a percentage add-on to payments under IPPS and the Outpatient Prospective Payment System. Lastly, the commission recommended that MSNI amounts for services furnished to MA beneficiaries would be paid directly to hospitals and excluded from MA benchmarks.

    Physician and Other Health Professional Services

    The report contained a recommendation to Congress for calendar year 2024 that it, “should update the 2023 Medicare base payment rate for physician and other health professional services by 50 percent of the projected increase in the Medicare Economic Index [MEI]”. MedPAC noted concern that clinicians may have difficulty absorbing cost increases due to inflation at current payment levels. Roughly half of the projected MEI is attributed to practice expenses; therefore, MedPAC believes by increasing payment rates by 50% of the MEI (1.45%), payment rates will keep pace with practice costs.

    The report also contained a recommendation to Congress that it “should enact a non-budget-neutral add-on payment, not subject to beneficiary cost sharing, under the physician fee schedule for services provided to low-income Medicare beneficiaries. These add-on payments should equal a clinician’s allowed charges for these beneficiaries multiplied by 15 percent for primary care clinicians and 5 percent for non-primary care clinicians.” This policy would allow for greater Medicare payments to safety-net clinicians who serve low-income populations. MedPAC stated that that this will result in increased access to care while relieving financial burden for safety-net clinicians.

    MA Program Status Report

    The commission reaffirmed their strong support for the inclusion of private plans in the Medicare program. However, commissioners remained concerned that the savings created from MA’s lower cost relative to FFS are not being realized by the taxpayers and the Medicare Part B beneficiaries paying premiums that are funding MA plans. In response to these concerns, the commission re-highlighted their previous recommendation calling on Congress and the Centers for Medicare & Medicaid Services (CMS) to address coding intensity, replace the quality bonus program, establish more equitable benchmarks, and improve the completeness of encounter data. The report also highlighted the difference in risk scores between MA plans and FFS, which found that for 2021, MA risk scores were 4.9% higher than FFS even with reductions required by law to make MA risk scores more consistent with FFS coding. MedPAC estimated this difference would result in $23 million in overpayments to MA plans for 2023. The commission once again pointed to their recommended changes to MA risk adjustment, which call for excluding diagnoses collected from risk assessment and instead use two years of diagnostic data and apply an adjustment to eliminate any residual impact of coding intensity.

    Medicare Part D Status Report

    The commission reported that in 2021, total Part D spending was $110.8 billion, and Part D plan enrollees paid about $14.9 billion in plan premiums for basic benefits. In addition to program spending, enrollees also paid $17.9 billion in cost sharing and $7.5 billion in premiums for enhanced benefits. The commission found that enrollees reaching the benefit’s catastrophic phase were still key drivers of program spending, making up 55% of the total spending. Additionally, they found that the value of the average basic benefit that is paid to plans through the capitated direct subsidy has plummeted in recent years with the average payment for 2023 being less than $2 per member per month, compared with payments of nearly $94 per member per month for reinsurance. Commissioners also identified a plateau in the share of generic prescription drugs and anticipate that price inflation will continue to drive spending upward. The commission again cited their 2020 recommendations to make substantial changes to Medicare Part D’s benefit design and made a nod to the passage of the Inflation Reduction Act which included this recommendation.

    Lastly, the report contained a complete list of all the commission’s votes and recommendations for the year in Appendix A.