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MedPAC Unexpectedly Considers Preliminary Proposal on 340B Program

December 11, 2015—The Medicare Payment Advisory Commission (MedPAC) Dec. 10-11 met to discuss draft recommendations for 2017 updates to various payment systems. However, a proposal on the 340B Drug Pricing Program was the most discussed issue among hospital payment updates.

MedPAC’s draft recommendations would reduce payment rates for 340B hospitals and redistribute the savings through the Medicare Disproportionate Share Hospital (DSH) Uncompensated Care Payment (UCP). The draft recommendations include three components:

  • Reduce the payment rates for 340B hospitals’ Part B drugs by 10 percent of the Average Sales Price;
  • Direct the program’s savings (~$300 million) from reducing Part B drug payment rates to the Medicare DSH UCP pool; and
  • Distribute UCP using data from the Medicare cost reports schedule S-10. The use of S-10 uncompensated care data should be phased in over three years.

Commissioner Herb Kuhn (Missouri Hospital Association) questioned whether it was in MedPAC’s charge to make such recommendations, as Congress did not create the 340B program as part of the Medicare program. Commissioner David Nerenz’s, Ph.D., (Henry Ford Health System) main concern was that the recommendations exclude Medicaid shortfall in uncompensated care costs.

MedPAC staff suggested that many of the 340B hospitals did not provide high levels of uncompensated care, which Chairman Francis Crosson, M.D., noted was one rationale to support redistribution. Dr. Nerenz pointed out that one reason for the observed disconnection between 340B hospitals and uncompensated care costs was because Medicaid shortfall was not included in the analysis conducted by MedPAC staff. 

Commissioners unanimously supported Chairman Crosson’s recommendation to provide a 1.65 percent update to inpatient and outpatient payments as authorized by current law. The recommendation takes into consideration several factors, including beneficiaries’ access to care, potential for declining Medicare margins, and pricing negotiations with private insurers.

MedPAC staff projected the aggregate Medicare margins would be negative 9 percent in 2016, which could set a new record low; the previous low was negative 7.3 percent in 2008. According to MedPAC staff, since 2009, overall Medicare margins have been relatively steady at around negative 5.8 percent.

The commission also expressed concern about physician and other health professionals’ payment adequacy. Their final recommendation was to increase physician payment rates by the amount specified in the current law, 0.5 percent, for calendar year (CY) 2017. MedPAC staff expressed concern over how volume growth has caused spending to increase faster than input prices and payment updates.

Additionally, the collected data illustrate that there are wide income disparities between primary care and radiology/non-surgical procedural specialties. In turn, Commissioner Mary Naylor, Ph.D., R.N., (University of Pennsylvania) encouraged MedPAC to collect more precise data to determine who is performing the services when care is delivered by a team and “incident to” billing is allowed.

MedPAC staff also noted that as part of its future work, the commission will undertake an evaluation of the current physician fee, with a focus on the distribution of payments across specialties. Finally, the commission recommended to not update the payment rates for Ambulatory Surgical Centers (ASCs) and to begin requiring ASCs to submit cost data.

Final recommendations will be voted on at the January 2016 MedPAC meeting and will be included in the annual March Report to Congress on Medicare Payment Policy.

Contact:

Susan Xu, M.P.A, M.S.
Lead Research Analyst
Telephone: 202-860-6012
Email: sxu@aamc.org

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