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MedPAC Discusses Inpatient and Outpatient Payment Recommendations

December 19, 2014The Medicare Payment Advisory Commission (MedPAC) met Dec. 18-19 to discuss draft recommendations for 2016 payments for hospital inpatient and outpatient, physician and ambulatory surgical center (ASC), outpatient dialysis, hospice, skilled nursing facility (SNF), home health services, inpatient rehabilitation facility (IRF), and long term care hospital (LTCH) services.

Final recommendations will be voted on at the January 2015 MedPAC meeting and will be included in the annual March Report to Congress on Medicare Payment Policy. Overall, the commission decided to rerun the payment updates recommended in last year’s report.

MedPAC staff presented three recommendations for hospital inpatient and outpatient services with a goal of reducing the shifting of care to higher cost sites. First, MedPAC staff recommended increasing payment rates for the acute care hospital inpatient and outpatient prospective payment systems in 2016 by 3.25 percent (0.95 percent above current law), contingent on implementing the two “site neutral” payment policies discussed below. Because it would eliminate sequestration, this recommendation would provide a net increase in payments of 2.55 percent in 2016, which translates to 2.25 percent above current law. As rationale for the update, MedPAC Chair Glenn Hackbarth, J.D., noted that under current law, aggregate margins are projected to fall to -9 percent in 2015, and even efficient providers would experience negative margins.

Second, the draft recommendation would reduce or eliminate differences in payment rates between outpatient departments and physician offices for selected ambulatory payment classifications (APCs). MedPAC developed criteria and previously 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 acute-care hospital payments by 0.9 percent.

Third, the draft recommendation would equalize LTCH and inpatient prospective payment system (IPPS) rates for non-chronically critically ill (CCI) cases by setting LTCH payment rates for non-CCI cases equal to acute care hospital rates and redistributing the savings to create additional inpatient outlier payments for CCI cases in IPPS hospitals. This recommendation would increase payments for acute-care hospitals by 0.4 percent in the first year and 1.2 percent when fully phased in. MedPAC intends for this package of recommendations to replace current law, including sequestration.

The commissioners generally expressed support for the draft recommendations, but several commissioners expressed interest in making public MedPAC’s list of 266 efficient hospitals to foster competition in the provider community.

Continuing the commission’s approach to site neutral payments, a recommendation was discussed that would eliminate the differences in payment between IRFs and SNFs for selected conditions. While staff evaluated 22 conditions, the commission is not planning to recommend which conditions should be included. For the selected conditions, IRFs would still be paid on base rates, however the base rate would be the average SNF payment per discharge. All add-on payments would remain at current levels. The recommendation would also grant IRFs relief of certain regulatory requirements, including the provision of three hours of therapy per day and face-to-face physician visits three times per week. Commissioners recognized that the 60 percent rule requirement would need to be modified, but reached no consensus on how that would occur. 

With regard to physician payments, the commission reinstated its recommendation to repeal and replace the sustainable growth rate (SGR) formula and the commission’s four principles for SGR replacement adopted during the September 2011 meeting [see Washington Highlights, Sept. 16, 2011].

MedPAC’s draft recommendation would also establish a prospective per beneficiary payment to replace the Primary Care Incentive Payment (PCIP) after it expires at the end of 2015. The per beneficiary payment should equal the average per beneficiary payment under the PCIP and funding for the per beneficiary payment should come from reduced fees for all services in the fee schedule other than eligible primary care services. In drafting this recommendation, MedPAC’s goal is to provide additional support for primary care practitioners by redistributing fee schedule payments from specialty care to primary care.

The commission also issued draft recommendations to eliminate the update to the payment rates for ambulatory surgical centers (ASCs), outpatient dialysis services, IRFs, LTCHs and hospice services for 2016. For skilled nursing facilities (SNFs), MedPAC’s draft recommendation is to refrain from updating payments while a revised PPS is implemented, and in 2017, begin rebasing with a 4 percent reduction in payments. 

The commission also issued a draft recommendation that would provide no payment update for home health care services for 2016, reduce payments through a full rebasing that adequately addresses excessive payments, and rebalance payments to prevent providers of home health services from favoring therapy over non-therapy services.

Further, MedPAC’s draft recommendation would expand fraud and abuse efforts to address regions with aberrant patterns of home health utilization and would establish a co-payment for certain episodes to reduce spending and encourage appropriate utilization.

Finally, commission staff provided the annual status report on the Medicare Advantage program.  There was a discussion regarding the star rating system and the potential to disadvantage plans serving dual-eligible beneficiaries. Commissioners noted that CMS is aware of this issue and is currently evaluating the differences between plans and enrollees.


Jennifer Faerberg, MHSA
Director, Clinical Transformation Unit
Telephone: 202-862-6221


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