MedPAC Report Recommends Site-Neutral Medicare Payments, SGR Repeal

In its annual report to Congress, the Medicare Payment Advisory Commission has recommended a 3.25 percent payment rate increase for the acute-care hospital outpatient and inpatient payment systems.

Under current law, MedPAC projects a statutory payment update of 2.2 percent for fiscal year 2015 — taking into account the expected increase in the hospital operating market basket index, minus an adjustment for the 10-year average productivity growth forecast and a -0.2 percent budgetary adjustment. However, MedPAC members have called for a bigger payment increase because of negative Medicare margins and various payment reduction policies, according to the report. The recommended update was made under the assumption Congress won't override scheduled Medicare reimbursement reductions for hospitals.

Medicare margins are expected to hit -6 percent in 2014, compared with -5.4 percent in 2012. That projection doesn't take into account an annual 2 percent pay cut for hospitals under sequestration, which could lower margins by another 2 percentage points. In 2015, under current law, MedPAC expects Medicare payments to decline by roughly 1.3 percent as a result of various policy changes, such as expanded readmissions penalties, financial penalties for high rates of hospital-acquired conditions and the phasing out of electronic health record payments.

Additionally, Medicare disproportionate share hospital/uncompensated care payments will decline in 2015 and beyond under the Patient Protection and Affordable Care Act, according to the report. MedPAC projects that Medicare DSH payments will decrease from roughly $12 billion this year to $9 billion in 2015. However, hospitals are expected to see compensation for this loss through a rise in payments from Medicaid and private insurers as uninsured people gain coverage under the PPACA through Medicaid expansion and the health insurance exchanges, according to MedPAC.

Concurrent with the 3.25 percent pay increase, MedPAC also recommended Congress act to better align payments between hospital outpatient departments and other outpatient settings, such as physicians' offices and ambulatory surgery centers.

HOPDs generally receive significantly higher payments than other outpatient settings for the same services — in 2013, Medicare paid HOPDs 78 percent more than ASCs for the same procedure. The pay gap gives hospitals an incentive to acquire physician practices and begin billing for the same services as HOPD procedures, according to MedPAC.

"The Commission's position is that Medicare should ensure that patients have access to settings that provide the appropriate level of care," the report states. "From this perspective, if the same service can be safely provided in different settings, a prudent purchaser should not pay more for that service in one setting than another."

Therefore, Medicare should limit higher rates for HOPD settings to select services, such as those that have costs associated with standby emergency capacity, according to the report. MedPAC evaluated 450 ambulatory payment classifications and found 66 that don't require emergency standby capacity, don't have extra costs associated with greater patient complexity and don't need the additional overhead that comes with services that must be provided in a hospital setting. Aligning HOPD payments with physician fee schedule rates for these APCs would reduce Medicare spending and beneficiary cost sharing by $1.1 billion in one year, according to MedPAC.

Additionally, in conjunction with the inpatient and outpatient payment rate update, MedPAC has recommended long-term care hospitals should be paid the same amount as general acute-care hospitals for patients who are not deemed "chronically critically ill." MedPAC and others have raised concerns that long-term care hospitals lack meaningful admission criteria and therefore can end up admitting lower acuity patients who could have received care in a less costly setting, according to the report.

To remove this incentive for long-term care hospitals to admit less-complex patients, MedPAC advises only paying these facilities higher rates for chronically critically ill patients and reimbursing at standard inpatient prospective payment system rates for other patients. The funds saved as a result of this payment system change would be used to create a new outlier pool for chronically critically ill people treated in hospitals paid according to the IPPS.

MedPAC also reiterated its longstanding recommendation that Congress repeal Medicare's sustainable growth rate. Every year since 2003, Congress has passed a short-term legislative patch to stave off double-digit Medicare pay cuts for physicians under the SGR. "The Commission sees SGR repeal as urgent because, after a decade of year-end legislative overrides, the policy is causing uncertainty for physician and other clinician practices and has the potential to create instability for beneficiaries," the report states.

Recently, the House passed the SGR Repeal and Medicare Provider Payment Modernization Act of 2014, a bipartisan measure that would permanently solve the SGR issue by repealing the formula and replacing it with a payment system that incentivizes physicians to provide high-quality, low-cost care. However, the bill could be brought down by an amendment added by Ways and Means Committee Chairman Dave Camp (R-Mich.) that would delay the PPACA's individual mandate through 2019. The White House has indicated President Barack Obama will veto the legislation because of the amendment.

More Articles on Medicare Payments:
54 Statistics on Hospital Medicare Margins
CMS to Extend Low-Volume, Medicare-Dependent Hospital Payment Programs
Moody's: Most Hospitals Will See Less Revenue Under Two-Midnight Rule 

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