The Medicare Payment Advisory Commission (MedPAC) recently submitted its annual report on Medicare payments to Congress.  The report analyzes Medicare payment policy and makes payment update recommendations relating to Medicare fee-for-service (FFS) payment systems, the Medicare Advantage program, and the Medicare Part D prescription drug program.  MedPAC’s latest payment recommendations address the following FFS settings:  hospital inpatient and outpatient; physician and other health professionals; ambulatory surgical centers (ASCs); outpatient dialysis facilities; skilled nursing facilities (SNFs); home health care services; inpatient rehabilitation facilities; long-term care hospitals (LTCHs); and hospice services. Below is a selection of some of MedPAC’s notable recommendations and comments regarding these settings:

• Acute Care Hospitals.  Despite positive payment adequacy indicators in the hospital inpatient and outpatient setting, MedPAC expects aggregate Medicare hospital margins to remain negative and to decline further in 2015—even for hospitals that have had a good track record of efficiency.  In light of this projection, MedPAC recommends a 3.25 percent increase in payment rates for acute care hospital inpatient and outpatient prospective payment systems in 2015.  MedPAC also recommends a decrease in rates for outpatient services meeting certain criteria.  Doing this, the report notes, would align hospital rates with rates for freestanding physician offices and incentivize the provision of care in the most efficient setting possible.  (Health Headlines covered MedPAC’s proposed changes to outpatient payments in a previous edition, which is available here.) 
• Physician Payments.  With respect to physicians and other health professional payments, MedPAC reiterates its recommendation that Congress repeal the sustainable growth rate (SGR) formula.  MedPAC explains that the SGR formula “is causing uncertainty for physician and other clinician practices and has the potential to create instability for beneficiaries.”  MedPAC also recommends rebalancing of payments between primary and specialty care, as well as creating additional incentives for coordinated delivery systems (e.g., accountable care organizations).
• ASCs.  MedPAC recommends eliminating the update to payment rates for ASCs in 2015.  It also recommends that ASCs be required to submit data on the cost of services provided to Medicare beneficiaries. 
• SNFs.  MedPAC continues to recommend that Congress revise the SNF prospective payment system.  MedPAC previously suggested a three-pronged approach to restructuring the system, which included basing payments for therapy services on patient characteristics, not services provided; establishing a separate component for non-therapy ancillary service payments and removing them from the nursing component; and the addition of an outlier payment policy.  MedPAC also recommends eliminating the market basket update for SNFs.
• LTCHs.  According to the report, due to “[c]omparatively attractive payment rates for LTCH care,” there has been an “oversupply of LTCHs in some areas,” which MedPAC says has resulted in the inappropriate use of LTCH services by patients who are not chronically critically ill (CCI).  (Subject to certain exceptions, MedPAC recommends an eight-day intensive care unit stay threshold to determine whether a patient is CCI.)  To address this issue, MedPAC recommends that Medicare pay higher LTCH rates for CCI patients only, and that non-CCI patients should be paid at rates based on the inpatient prospective payment system.

MedPAC also notes that the margin projections in its report do not account for sequester-related decreases in Medicare payments because Congress was considering alternatives to the sequester at the time of MedPAC’s analysis.  Had MedPAC considered the cuts under the sequester, the report says, its projected margins would be just under 2 percentage points lower.

With respect to Medicare Advantage (MA), MedPAC recommends, among other things, that payments for employer group MA plans should be aligned with payments for comparable non-employer group plans, and that, starting in 2016, hospice benefits should be included in the MA benefits package.  For Part D, MedPAC makes certain observations about the program and says it will continue to “explore how the program could be restructured to provide stronger incentives for [Part D] plans to control drug spending.”

You can read the entire MedPAC report here.

Reporter, Greg Sicilian, Atlanta, +1 404 572 2810, gsicilian@kslaw.com.