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MedPAC Discusses Rates Paid to Hospitals Internationally, Among Other Topics

October 17, 2014—The Medicare Payment Advisory Commission (MedPAC) Oct. 9-10 convened for a meeting. The agenda included an international comparison of rates paid to hospitals and discussions regarding sharing risk in Medicare Part D; potentially inappropriate opioid use in Medicare Part D; the next generation of Medicare beneficiaries; Medicare entitlement based on disability; private sector initiatives to manage post-acute care; and validating relative value units in Medicare’s fee schedule for physicians and other health professionals. No recommendations were made during the meeting.

During the discussion comparing international rates for hospitals, MedPAC staff presented findings showing that Medicare rates are roughly 50 percent above international rates. This difference is similar to the difference in costs, which can largely be explained by input prices. While the Medicare program has limited tools to lower input prices, reducing administrative costs is more feasible, but will have a smaller effect.

In terms of how to refine the comparisons and how to respond to this differential, it was noted that the focus should be on the higher prices paid in the U.S. by private payers. Other approaches discussed include reducing administrative costs by simplifying quality reporting by moving toward fewer measures that emphasize outcomes and improving the Recovery Audit Contractor (RAC) auditing and appeals process.

The presentation on private sector initiatives to manage post-acute care raised the question of whether additional Medicare policies for fee-for-service (FFS) are necessary to address the fact that FFS does not create incentives for efficient use of post-acute care (PAC). Through an interview process, MedPAC staff identified a few private sector approaches that could be used to shape Medicare policies, including using a PAC benefit manager, post discharge monitoring, and hospital/PAC provider collaboration to improve quality.

The approaches that seemed of interest to commissioners include conducting a rigorous data driven identification of the best providers of PAC services and adding this information to the hospital compare website or giving hospitals more regulatory flexibility to steer patients to a smaller network of high quality PAC providers, particularly when hospitals have more financial responsibility for readmissions due to participation in new payment models.

The discussion of validating relative value units (RVUs) in Medicare’s fee schedule for physicians and other health professionals focused on the inaccuracy of RVUs in the fee schedule and the commission’s recommendations on validating RVUs. MedPAC staff presented findings to demonstrate the “top-down” approach the commission recommended to CMS is feasible and is the best approach.

To date, CMS’ approach has been to focus on individual services through a review process with input from the Relative Value Update Committee (RUC). MedPAC staff pointed out that this “bottom-up” approach is problematic because studies show that assumptions about time per service are inflated and service-by-service (e.g., time-and-motion studies) are costly, burdensome, and subject to bias.

MedPAC staff believe the commission’s top-down approach to validating RVUs is preferable because it would use the physician or other health professional as the unit of analysis and then would examine data on the service mix, total time worked and time assumed in the fee schedule.  These data would be used to identify services with time allotted that is too low or too high and refer these services for detailed assessment.


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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