MedPAC Votes to Reduce Payments for Certain Hospital Outpatient Services to Levels Paid at Physician Offices

by King & Spalding

We reported in last week’s Health Headlines that the commissioners of the Medicare Payment Advisory Commission (MedPAC) voted unanimously on January 16, 2014 to recommend that Congress reduce hospital outpatient rates for 2015 to bring them in line with physician office rates.  At the time of our report, however, the transcript of MedPAC’s meeting was not yet available.  The almost 450-page transcript is now available and contains interesting additional details regarding MedPAC’s proposals.

For example, MedPAC’s recommendation does not apply to all services, but only to Ambulatory Payment Classification (APC) codes that meet certain criteria.  Practically speaking, therefore, MedPAC recommended that hospital outpatient payment rates for 66 APCs be reduced to match the rates paid at physician offices.  This recommendation, standing alone, would lead to “lower overall Medicare revenue for hospitals of about 0.6 percent and lower Medicare OPD [Outpatient Department] revenue of 2.7 percent.”  Because MedPAC was concerned that such a reduction would lead to negative Medicare margins for virtually every hospital in the nation, MedPAC also recommended that Congress increase 2015 prospective payment system rates by 3.25 percent, which would be an increase of 1.05 percent over current law.  The net result, therefore, if both MedPAC proposals were adopted would actually be higher rates in 2015 than under current law.  This does not take into account the effects of the sequester, however, which MedPAC was clear that it “opposes” because it “reduces . . . rates[s] below [MedPAC’s] recommended rate[s].” 

MedPAC also unanimously approved a recommendation “to reduce incentives to admit patients who are not appropriate candidates for LTCH [Long Term Care Health] services.”  In particular, MedPAC recommended that CMS continue to “maintain a separate LTCH payment system” but limit higher LTCH level payments to “LTCH patients that were chronically critically ill, or CCI.”  All other the non-chronically critically ill cases “would be paid IPPS-based rates.”  Under this recommendation, “LTCHs would be required to maintain an average length of stay of more than 25 days only for their CCI cases.”  MedPAC also recommended that the savings from this policy change be transferred to the IPPS outlier pool and used to increase outlier payments for the treatment of the chronically critically ill.

MedPAC’s primary rationale for these recommendations was that the current system “encourage[s] care to be shifted to higher-cost sites” which, in turn, “can increase provider costs of care, increase Medicare program costs, and increase beneficiary cost sharing without any evidence that care is improved.”   The commissioners cited evidence that precisely this sort of shift had occurred including that “the volume of E&M [Evaluation & Management] office visits, echocardiograms, and nuclear cardiology services that are provided in freestanding offices all decreased in 2011 and 2012 while the volume increased in OPDs for the same services.”  With these recommendations, therefore, MedPAC is seeking to “align[] payment rates for similar cases across silos in order to eliminate this distortion in Medicare prices which can create inefficiency.”

MedPAC’s recommendations are expected to appear in its March 2014 report to Congress.

Reporter, Daniel J. Hettich, Washington D.C., +1 202 626 9128,

Written by:

King & Spalding

King & Spalding on:

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