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MedPAC Releases June 2014 Report to Congress

June 20, 2014— The Medicare Payment Advisory Commission (MedPAC) released its June 2014 Report to the Congress on Medicare Payment Policy. The report includes chapters on: synchronizing Medicare policy across payment models, improving risk adjustment in the Medicare program, measuring quality of care in Medicare, financial assistance for low-income Medicare beneficiaries, per beneficiary payment for primary care, site-neutral payments in post-acute care settings, and measuring the effects of medication adherence for the Medicare population.  These chapters do not include any new recommendations.

Synchronizing Medicare Policy across Payment Models
In this chapter, MedPAC provides a brief explanation of the history of the three current payment models: traditional fee-for-service (FFS) (pays per service using established Medicare payment rates), Medicare Advantage (MA) (capitated payment rates), and the accountable care organization (ACO) (FFS along with incentives for providers to reduce unnecessary care and improve quality).

The MedPAC report explains the commission’s belief in the long-run need to synchronize payment rules and quality measures across all three payment models to avoid paying one model more than others for the same or lower quality care.  In particular, the report includes the commission’s ideas on reconciling rules and incentives for spending benchmarks, quality measurements, and risk adjustment.

After analyzing whether a common spending benchmark could be set for MA plans and ACOs, MedPAC concluded that no single payment model is uniformly less costly than other models in all markets.  How benchmarks are set will impact which ACOs and MA plans may want to enter the program in a particular area.  The commission plans to examine what synchronized policy across payment models would look like from the beneficiary perspective.

Improving Risk Adjustment in the Medicare Program
MedPAC explains that the CMS-hierarchical condition category (CHS-HCC) model that Medicare currently uses to risk adjust MA payments overpredicts costs for low cost beneficiaries and underpredicts costs for high cost beneficiaries. The commission looked into alternative methods with the goal of improving how well risk adjustment predicts the costs for the highest and lowest cost beneficiaries. 

MedPAC found that all three alternative risk adjustment measures introduce some degree of cost-based payment into MA, which would reduce incentives to manage conditions of enrollees and keep costs down. As a result, MedPAC concluded that penalties for disenrollment of high-cost beneficiaries or other administrative measures may be necessary to reduce plan incentives to cherry pick patients.

Financial Assistance for Low-income Medicare Beneficiaries
This chapter focuses on evaluating ways that changing income eligibility for the Medicare Savings Programs (MSPs) could help low-income Medicare beneficiaries afford the out-of-pocket (OOP) costs associated with a redesigned Medicare fee-for-service benefit package.

The commission concluded that the redesigned benefit package should keep OOP costs in place as an incentive for beneficiaries to make cost-conscious decisions about use of health care. This should be paired with increasing the MSP income eligibility criteria to 150 percent of poverty to provide financial assistance to lower income beneficiaries by subsidizing their Part B premium to help manage the other OOP costs.

Site-Neutral Payments for Select Conditions Treated in Inpatient Rehabilitation Facilities and Skilled Nursing Facilities
MedPAC’s report also included a chapter focused on site-neutral payments for inpatient rehabilitation facilities (IRFs) and skilled nursing facilities (SNFs), which are currently paid under separate payment systems. To conduct analysis, MedPAC selected three conditions that frequently bring patients to SNFs and IRFs for recovery: major joint replacement, other hip and femur procedures (such as hip fractures), and strokes. 

The commission found that patients are generally similar in both settings for joint replacement and hip and femur procedures, making these conditions a good place to start for site-neutral payments. MedPAC also suggested that CMS should evaluate waiving certain IRF requirements, like the requirement for intensive therapy and the frequency of physician supervision. This would allow IRFs to function more like SNFs when treating these conditions. MedPAC determined that strokes are more variable and more needs to be done to determine which cases could be included in a site-neutral policy.

Measuring Quality of Care in Medicare
MedPAC continues to examine alternative ways to measure quality of care provided to Medicare beneficiaries. The commission believes that the current method for how quality is measured relies too much on clinical process measures that are not well associated with improved health outcomes.

In response, the commission has focused on examining alternative ways that quality can be measured using population-based outcome measures, such as readmission rates after an inpatient hospital stay, preventable admissions for inpatient hospital care, and patient experience.

MedPAC recognizes that population-based measurement is difficult under fee-for-service Medicare payment as “providers do not explicitly accept responsibility for the care of a population of beneficiaries”. Currently, the commission believes that population-based outcome measures are more appropriate for MA plans or Medicare ACOs.

Per Beneficiary Payment for Primary Care
MedPAC continues to express its concerns that primary care services are undervalued by the Medicare fee schedule compared to procedure based specialty services. They have in the past, and continue to support, the 10 percent bonus for primary care services provided by primary care providers that was created as part of the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152). The bonus is scheduled to expire at the end of calendar year (CY) 2015 and the commission supports that bonus payments should continue.

The chapter discusses possible amounts of payments, methods of beneficiary attribution, and the implementation of practice requirements.

The commission believes an appropriate starting point for the payment amount would be $2.60 per beneficiary per month, which is the same amount providers would be reimbursed if the total amount of bonus payments paid out in 2012 ($664 million) would have been paid on a per-beneficiary-per-month basis. While a modest amount, the commission feels allowing the bonus payment to expire completely would be sending a poor signal to primary care providers.

Measuring the Effects of Medication Adherence for the Medicare Population
Last year, MedPAC conducted an analysis to examine the relationship between adherence to medications and use of medical services by beneficiaries. For the study, the commission chose a single cohort of beneficiaries with congestive heart failure (CHF).

Results of the study showed better adherence to CHF medication regimen is associated with lower spending among beneficiaries with CHF. However, the effects likely vary by demographic characteristics of beneficiaries. The commission recognizes that the results of the study are not generalizable and that more research is needed to define clinical conditions for when medication adherence improves outcomes so that efforts can be focused.


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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