On July 22, 2015, the U.S. House Ways & Means Health Subcommittee heard testimony from Mark Miller, Ph.D., executive director of Medicare Payment Advisory Commission (MedPAC).  Dr. Miller’s testimony highlighted recent trends in hospital payments and MedPAC recommendations to improve the accuracy of fee-for-service (FFS) payments.  These recommendations include equalizing hospital outpatient department payment rates to physician office levels and moving more rural hospitals to a fully prospective payment model.  The American Hospital Association (AHA) also provided written comments to the subcommittee.

According to MedPAC data analysis, Medicare inpatient discharges have declined by approximately 17 percent from 2006 to 2013, most rapidly for rural hospitals.  By comparison, the use of outpatient services increased during this period by approximately 33 percent overall.  Although hospitals’ overall cost margin for Medicare was negative 5.4 percent (i.e., the payment rates do not cover the cost of providing care), private insurers pay on average about 50 percent above cost.

MedPAC’s recommendations for increased payment accuracy included the following:

• Aligning Prices Across Care Settings
  • Setting hospital outpatient rates equal to or near physician office rates for services often performed in both locations; and
  • Paying standard long-term care hospital (LTCH) payment rates only for LTCH patients who are truly chronically, critically ill, and for other patients under the appropriate inpatient prospective payment system (IPPS) rates.
• Financing Graduate Medical Education
  • Awarding 60 percent of indirect medical education payments to hospitals and other entities that meet educational and program design and quality criteria, instead of just to teaching hospitals as IPPS add-on payments;
  • Increasing transparency of Medicare funds paid to teaching hospitals;
  • Analyzing workforce needs based on evolving care delivery, rather than linear projections;
  • Exploring valuing specialty residency programs differently than primary care programs; and
  • Increasing diversity in medical schools.
• Differing Payments for Rural Hospitals
  • Targeting payment adjustments to hospitals that truly are low-volume and isolated;
  • Measuring the payment adjustments based on total patient volume, rather than Medicare patient volume;
  • Limiting cost-based reimbursement to the “most isolated providers”; and
  • Allowing for different quality standards for rural emergency care.
• Changing Hospital Readmissions Penalties
  • Setting a fixed target for readmission rates above which penalties apply, rather than comparative national rates; and
  • Utilizing an all-condition readmission measure, rather than focusing just on the current five conditions (heart failure, acute myocardial infarction, pneumonia, chronic obstructive pulmonary disease, and planned hip/knee replacements).
• Improving Hospital Oversight
  • Focusing Recovery Audit Contractor (RAC) audits on hospitals with high rates of short inpatient stays;
  • Adjusting RAC contingency fees based on performance;
  • Aligning the RAC look-back period and Medicare rebilling window; and
  • Withdrawing the “two-midnight rule” established in 2014.
• Reducing Beneficiary Liability
  • Permitting time spent in outpatient observation status to count towards the three-day prior hospitalization threshold for skilled nursing facility (SNF) coverage; and
  • Requiring hospitals inform patients in outpatient observation that their status might affect SNF coverage.

AHA responded to many of these and other MedPAC recommendations by written submission to the subcommittee.  For example, the AHA provided its own recommendations around the RAC program, including imposing a penalty on RACs whose decisions are overturned on appeal and requiring RACs to utilize only the medical documentation available at admission to determine medically necessity.  The AHA also called on the subcommittee to support the creation of at least 15,000 new residency positions.

MedPAC’s written report is available here.  A copy of AHA’s written statement is available here.  Subcommittee Chairman Kevin Brady’s opening statement is available here.

Reporter, Elizabeth N. Swayne, Washington, D.C., + 1 202 383 8932, eswayne@kslaw.com.