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MedPAC Discusses Hospital Inpatient and Outpatient Payment Recommendations

December 13, 2013The Medicare Payment Advisory Commission (MedPAC) met Dec. 12-13 to discuss draft recommendations for 2015 payments for hospital inpatient and outpatient services and physician and ambulatory surgical center (ASC) services. Final recommendations will be voted on at MedPAC’s next meeting in January, and will be included in the annual March Report to Congress on Medicare Payment Policy.

MedPAC staff presented three recommendations for hospital inpatient and outpatient services with a goal to encourage providing care in lower-cost settings. First, MedPAC staff recommended increasing payment rates for the acute care hospital inpatient and outpatient prospective payment systems by 3.2 percent in 2015, contingent on implementing the two “site neutral” payment policies discussed below. This recommendation would provide an additional 1 percent update above the 2.2 percent increase required by current law.

The rationale, as explained by MedPAC Chair Glenn Hackbarth, J.D., was that under current law, even efficient providers would experience negative margins.  Given disproportionate share hospital (DSH) cuts and other reductions, the overall update is expected to be negative 1.3 percent in fiscal year (FY) 2015 under current law.  The 3.2 percent update, combined with two site neutral proposals, would bring the overall update slightly above zero, at 0.3 percent.  The commission’s update estimate did not take into account sequestration, which the commission assumes to be a temporary policy but will reevaluate next year.

The commission also set forth a draft recommendation that would reduce or eliminate differences in payment rates between outpatient departments and physician offices for selected ambulatory payment classifications (APCs).  MedPAC developed criteria and identified 66 APCs where payment rates could be equal or differences could be narrowed.  According to the commission, adjusting payment rates for these 66 APCs would reduce hospital spending by $1.1 billion per year, or 0.6 percent of hospital Medicare revenue. 

Additionally, the commission issued a draft recommendation to equalize long-term acute care hospital (LTCH) and inpatient prospective payment system (IPPS) rates for non-chronically critically ill (CCI) cases.  CCI cases are defined as cases with more than eight ICU days in preceding IPPS stay.

The draft recommendation would set LTCH payment rates for non-CCI cases equal to acute care hospital rates, and redistribute the savings to create additional inpatient outlier payments for CCI cases in IPPS hospitals.  MedPAC’s analysis showed that 36 percent of current LTCH cases would qualify for higher LTCH CCI rates, while the remainder (64 percent) would be paid at IPPS base rates. This recommendation would increase payments for IPPS hospitals by $2 billion (or 1.2 percent) in 2015, and would benefit hospitals with high CCI shares, such as urban, major teaching, and large hospitals.

The commissioners generally expressed support for the draft recommendations.  Discussions focused on three issues:

  • Potential unintended consequences of LTCH payment reforms;
  • The transition period for implementing the new policies; and
  • Appropriateness of the recommended update amount.

There was an extensive discussion about the role of hospital margins in setting the update level, with a debate regarding whether the payment should be set to cover cost or to incentivize providers to reduce costs.  

The commission did not issue draft recommendations that would make changes in physician payments at this time, but instead reinstated four principles to repeal and replace the sustainable growth rate (SGR) that the commission adopted during its Sept. 2011 meeting [see Washington Highlights, Sept. 16, 2011].

The commission also issued draft recommendations for ASCs to eliminate the update for calendar year (CY) 2015. In addition, the commission recommended that ASCs should be required to submit cost data beginning in CY 2015.


Susan Xu, M.P.A, M.S.
Lead Research Analyst
Telephone: 202-860-6012


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