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Learn about policy issues important to medical schools and teaching hospitals, with Executive Vice President Atul Grover, M.D., Ph.D.

Washington Highlights

MedPAC Finalizes Payment Update Recommendations; Hospital Short Stay Policy Issues Deferred

January 16, 2015— The Medicare Payment Advisory Commission (MedPAC) Jan. 15-16 met to finalize recommendations regarding 2015 payments for hospital inpatient and outpatient services, ambulatory surgical centers (ASCs), outpatient dialysis, hospice, inpatient rehabilitation facilities, and long-term care hospitals. These recommendations will be included in MedPAC’s 2015 March Report to Congress on Medicare payment policy.

The commission decided to rerun several of the payment updates recommended in last year’s report, including those pertaining to home health, skilled nursing facilities (SNFs), the sustainable growth rate (SGR), or hospital payments. For these issues, MedPAC will include the draft recommendations presented at the commissions December meeting [see Washington Highlights, December 19, 2014].

Accordingly, the recommendation for hospital inpatient services that will be included in the March Report will be to increase 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 two site neutral policies [see Washington Highlights, December 19, 2014]. Because it would eliminate sequestration, this package would provide a net increase in payments of 2.55 percent in 2016, which translates to 2.25 percent above current law.

With regards to the commission’s recommendation on the SGR, MedPAC Chair Glenn Hackbarth, J.D., stated that the commission had supported a bipartisan, bicameral agreement between the House Energy and Commerce Committee, House Ways and Means Committee, and Senate Finance Committee, in the 113th Congress, which was ultimately not passed due to a lack of offsets. Chairman Hackbarth noted that large sums of Medicare savings have been used in costly agreements to patch the SGR, and expressed his frustration with Congress’ inability to identify enough for a full repeal and replacement.

MedPAC voted to recommend that Congress should eliminate the update to payment rates for: ASCs and outpatient dialysis for calendar year 2016; and for hospice, inpatient rehabilitation facilities (IRFs), and long-term care hospitals for fiscal year 2016.  Additionally, MedPAC recommended that Congress require ASCs to submit cost data.

The commission unanimously voted for a modified version of the draft recommendation related to the per-beneficiary payment to replace the Primary Care Incentive Payment (PCIP), which will expire at the end of 2015.  The revised recommendation would still set the per-beneficiary payment to equal the average beneficiary payment under the PCIP and would exempt this payment from beneficiary cost sharing.  The original recommendation was modified so that it now will protect PCIP-defined primary care services regardless of the practitioners furnishing the services.  Funding for the per beneficiary payment would come from reducing fees for all services in the fee schedule by 1.4 percent (no longer excluding eligible primary care services).

MedPAC unanimously approved a recommendation to equalize payments to SNFs and IRFs for certain conditions, which would be phased in over three years and would make payment rates for 22 conditions site neutral by reducing aggregate payments to IRFs by 7 percent.  IRFs would receive relief from regulations specifying the intensity and mix of services for site-neutral conditions.

The second day of MedPAC’s meeting included a discussion of hospital short stay policy issues, including ways to: reduce payment differences between short inpatient stays and observation stays, reduce the burden of recovery audit contractor (RAC) reviews and increase RAC accountability, revise the SNF 3-day hospital stay requirement for Medicare coverage, and to protect beneficiaries against liability for self-administered drugs. MedPAC did not make recommendations related to these issues, but they hope to draft recommendations in March.

MedPAC did not reach consensus on a recommendation to reduce payment differences between observation stays and short inpatient stays. Some commissioners favor creating a lower acuity diagnosis-related group (DRG) for short stays through an methodology akin to DRG refinement, some support site neutral payments for observation and short stays, and some question whether to pursue any payment policy changes in light of the potential to unravel the DRG system and simply shift the cliff in payment between observation and inpatient stays by creating a new cliff in payment between one-day and two-day inpatient stays.  Commissioners raised concerns that creating a new payment cliff between one-day and two-day inpatient stays by establishing a short stay DRG or making one-day stays and observation stays site- neutral does not necessarily resolve the problem of payment differentials.

MedPAC considered the Centers for Medicare & Medicaid Services (CMS) new rules related to RAC reviews, which would limit inpatient status reviews to six months from the date of service. This would ensure that hospitals would be within the one year window to rebill under Part B when the RAC denial occurs, but would not ensure that a hospital could go through the appeals process and still have an opportunity to rebill.

The commission is also considering a recommendation to target hospitals with high rates of short inpatient stay utilization for RAC review and exempt other hospitals, or penalizing hospitals with a disproportionate share of one day inpatient stays.  Commissioners acknowledged a drawback to these proposals is that they could result in a large penalty or substantial RAC scrutiny for a small subset of hospitals or penalizing a large subset of hospitals and creating new administrative burdens for CMS.  MedPAC will also continue to consider whether to reduce RAC contingency fees to make them performance based.

MedPAC remains interested in modifying the three-day hospitalization requirement for Medicare coverage of a SNF stay, but has veered away from completely eliminating it due to the substantial program costs associated with doing so.

The commission also seemed receptive to a recommendation to limit beneficiary liability for self-administered drugs provided in the outpatient setting by permitting hospitals to waive charges for self-administered drugs and capping the amount the beneficiary could be charged based on hospital costs.  Another option considered would be to cover the drugs under the outpatient system or limiting coinsurance liability under Part D the same way emergency room services are still covered even when provided out of network.  The commissioners raised concerns about the costs associated with the third option and wanted to be sure they were understood before giving that option further consideration.

MedPAC ended Friday’s session by reviewing next steps in Medicare quality measurement, a continuation of their discussion from spring 2014. The review focused specifically on the healthy days at home (HDAH) measure, which calculates the total days in a set time period that a Medicare recipient in a given geographic population did not have a non-ambulatory interaction with the health care delivery system. The Commission provided a breakdown of specific healthcare sector service use by all Medicare recipients, those with one chronic condition, and by race. The initial analysis showed that home health usage had the most variation among the identified sectors; however, Commissioners requested further discussion on this topic, with additional focus on the risk-adjustment models utilized for the measure.

The two-day MedPAC meeting also included a status report on Part D and exploring ways to synchronize payments and level the playing field between Medicare Advantage (MA), Accountable Care Organizations (ACOs), and fee-for-service (FFS) Medicare. 

Contact:

Scott Wetzel, M.P.P.
Lead, Quality Reporting
Telephone: 202-828-0495
Email: swetzel@aamc.org

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Jason Kleinman
Sr. Legislative Analyst, Govt. Relations
Telephone: 202-903-0806
Email: jkleinman@aamc.org