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MedPAC Votes on Hospital Inpatient and Outpatient Payment Recommendations

January 17, 2014—The Medicare Payment Advisory Commission (MedPAC) met Jan. 16-17 to discuss and vote on recommendations regarding hospital inpatient, outpatient, and long term care hospital (LTCH) payment policy for 2015. The commission also voted on recommendations related to Medicare Advantage employer bid and hospice policies, and outpatient dialysis and home health care services.  Final recommendations will be included in the annual March Report to Congress on Medicare Payment Policy. 

Chairman Glenn Hackbarth, J.D. opened the meeting with a public statement regarding MedPAC's position on sequestration and its interplay with the commission's recommendations.  He explained that sequestration is not a cumulative or permanent change to the base rate, whereas MedPAC's recommendations are updates to the base rate.  The commission opposes sequestration as a way to reduce payments, particularly below the base rate, because MedPAC favors a more targeted approach to achieve savings.

The MedPAC staff presentation projected a 1.3 percent decline in hospital payments for 2015.  With the goal of increasing incentives for efficient care while maintaining adequate levels of payments, the commission voted in favor of three recommendations for hospital inpatient and outpatient services.  Specifically, MedPAC voted that Congress should direct the Secretary of Health and Human Services (HHS) to:

  • Reduce or eliminate the differences in payment rates between outpatient departments and physicians’ offices for selected ambulatory payment classifications (APCs);
  • Set LTCH base payment rates for non-chronically critically ill (CCI) cases equal to those of acute care hospitals, and redistribute savings to create additional inpatient outlier payments for CCI cases in IPPS hospitals.  The change should be phased in over a three-year period from 2015 to 2017; and
  • Increase payment rates for the acute care hospital inpatient and outpatient prospective payment systems in 2015 by 3.25 percent concurrent with the change to the outpatient payment system discussed above and with initiating the change to the long-term care hospital payment system.

With respect to the first part of the recommendation, MedPAC does not believe that payments should be equalized for all services, rather only those that meet certain criteria.  MedPAC has previously identified 66 APCs that met these criteria and the recommendation the commission voted upon was related to these 66 APCs, with slight adjustments because a few of these APCs are subject to significant packaging in the Outpatient PPS due to recent regulations. 

MedPAC has determined that adjusting payment rates in these 66 APCs would reduce hospital program spending and cost sharing by $1.1 billion per year and would reduce hospitals' Medicare revenue by 0.6 percent (with a larger effect on rural and small hospitals).  As a result, the presentation and some of the commissioners acknowledged that there may be a need to mitigate the impact of the payment rate changes.  An illustrative example would be to limit losses to two percent of overall revenue for hospitals that have disproportionate share hospital (DSH) greater than the median.

The commission also discussed potential changes to Medicare accountable care organizations (ACOs).  The commission did not put forth recommendations at this time.  MedPAC staff presented on the current status of two ACO programs, the Pioneer ACO Model and the Medicare Shared Savings Program, then offered four key areas for discussion: beneficiary attribution, the setting of benchmarks, one-sided versus two-sided risk, and incentives to engage beneficiaries.  The commission also discussed the significant investment and start-up costs necessary for providers to engage in ACO programs.

Commissioners engaged in robust discussion about the above topics, and felt strongly that the methodologies for beneficiary attribution and setting the benchmarks were critical to ACO success.  Commissioners agreed that it is necessary to have accurate benchmarks, as well as benchmarks that control spending and coordinate with Medicare Advantage plans (MA). 

Likewise, commissioners felt more information was needed on the impact of the current attribution methodologies and that attribution needs to consider the different care patterns of different beneficiaries, as well as recognize the range of providers engaged in primary care from mid-level practitioners to various specialists. 

Related to attribution, commissioners engaged in conversation about how to better engage beneficiaries once they have been aligned with an ACO.  Commissioners were in favor of techniques such as reduced cost sharing for using providers within the ACO network and giving providers the ability to more directly recommend use of partner post-acute care providers. 

The commission was divided in opinion on one-sided versus two-sided risk.  Most agreed that ACOs should eventually transition to two-sided risk, but some commissioners felt that there should still be a one-sided risk option for those providers who are interested in learning and redesigning care with smaller levels of risk.

The MedPAC staff's presentation on the adequacy of home health care services and steps toward post-acute care payment reforms included an extensive discussion of a potential readmissions reduction policy for home health care designed to align incentives with the hospital readmissions reduction program. 

Following the presentation, the commission voted in favor of the home health care readmissions reductions policy and also voted that Congress should direct the HHS Secretary to implement common assessment items for use in home health agencies, skilled nursing facilities, inpatient rehabilitation hospitals, and long-term care hospitals by 2016.

The commission also voted in favor of changes to the Medicare Advantage program and voted not to increase the outpatient dialysis payment rate for calendar year 2015 (per episode payment should be equal to 2014 rate).  Additionally, commissioners voted that Congress should instruct the HHS Secretary to include a measure in the end stage renal disease (ESRD) Quality Incentive Program that assesses anemia under treatment, redesign the low-volume adjustment to consider a facility's distance to the nearest facility, and audit dialysis facilities cost reports. 


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Washington Highlights, a weekly electronic newsletter, features brief updates on the latest legislative and regulatory activities affecting medical schools and teaching hospitals.

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