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Washington Highlights

MedPAC Recommends One Percent Increase in Hospital Inpatient and Outpatient Payments

December 7, 2012—The Medicare Payment Advisory Commission (MedPAC) met Dec. 6 to discuss draft recommendations regarding 2014 payments for hospital inpatient and outpatient services and physician and ambulatory surgical center services (ASCs). Final recommendations will be voted on at MedPAC’s next meeting on Jan. 17, 2013, and will be included in the annual March Report to Congress on Medicare Payment Policy.

MedPAC staff presented a draft recommendation for a 1 percent increase to fiscal year (FY) 2014 inpatient payments and calendar year (CY) 2014 outpatient rates. This was the only proposed recommendation for hospital inpatient and outpatient services. The inpatient payment update would be 0.8 percent less than the statutory update, to allow the Department of Health and Human Services (HHS) to recoup past overpayments to hospitals based on documentation and coding adjustments.

MedPAC staff argued that documentation and coding changes following the introduction of MS-DRGs in 2008 led to increased hospital payments without a corresponding change in patient complexity. While CMS had previously reduced payments in 2011 and 2012 to offset documentation and coding overpayments in 2008 and 2009, staff claimed that additional adjustments were necessary to recover over $11 billion in overpayments from 2010 through 2013. 

In support of the outpatient update recommendation, staff also cited the growth in services from physician offices to hospital outpatient departments (HOPD). Specifically, in 2011 hospital outpatient department non-emergency evaluation and management (E/M) visits have increased 8 percent and outpatient echocardiograms have increased 18 percent while physician office visits for the same services have decreased.

 The commission did not recommend changes in HOPD payments at this time. MedPAC made formal recommendations in its March 2012 Report to Congress to reduce payments for E/M services provided in hospital outpatient departments to the same level as services provided in physician offices [see Washington Highlights, March 23].

The committee also reaffirmed its position for repealing and replacing the Sustainable Growth Rate (SGR) formula. At the September 2011 MedPAC meeting, the committee recommended four principles upon which an SGR replacement should be based [see Washington Highlights, Sept. 16, 2011]. The recommended principles are:

  • 10 years of statutory payment updates
  • The collection of data to improve payment accuracy and identify overpriced services;
  • Financial incentives to move into Accountable Care Organizations (ACOs); and
  • If Congress chooses to fund the SGR replacement fix entirely by Medicare offsets, it should do so by freezing payments to primary care physicians while reducing payments for all other specialties; reducing payments to hospitals, skilled nursing facilities (SNFs), home health and others; and increasing out-of-pocket costs to beneficiaries.

All commissioners supported the repeal of SGR as well as the four principles upon which a replacement should be based. The committee is deeply concerned with Congress’s continued inaction on the SGR and emphasized the urgency in dealing with the matter now, as a replacement will only become more costly in the future. Without another temporary patch by Congress, physician services will face a 26.5 percent reduction on Jan 1, 2013.

MedPAC staff also presented the commission results from the 2012 MedPAC Physician Access Survey. According to the results, 77 percent of Medicare beneficiaries surveyed never had to wait a significant amount of time for a routine appointment. Access for minority beneficiaries continues to be worse than non-minority beneficiaries, but the results showed little variation between urban and rural beneficiaries. Some commissioners were not comfortable with the suggestion that an access problem does not exist, though many felt access issues cannot be attributed solely to Medicare payment rates.

The committee also issued draft recommendations for Ambulatory Surgery Centers (ASCs) to receive a 0.5 percent payment increase for CY 2013. In addition, the committee recommended that  ASCs to be required to submit cost data beginning in CY 2014.

Commissioners generally were supportive of the recommended payment update, though it was not unanimous. Multiple commissioners felt they did not have enough data to make an informed decision. ASCs are scheduled to receive a 0.6 percent payment increase in CY 2013.


Evan Collins, MHA
Specialist, Clinical Operations and Policy
Telephone: 202-828-0552

Scott Wetzel, M.P.P.
Lead, Quality Reporting
Telephone: 202-828-0495


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Jason Kleinman
Sr. Legislative Analyst, Govt. Relations
Telephone: 202-903-0806