Categories: Medicare

The Medicare Payment Advisory Commission (“MedPAC”) met in Washington, DC, on December 7-8, 2017. The purpose of this and other public meetings of MedPAC is for the commissioners to review the issues and challenges facing the Medicare program and then make policy recommendations to Congress. MedPAC issues these recommendations in two annual reports, one in March and another in June. MedPAC’s meetings can provide valuable insight into the state of Medicare, the direction of the program moving forward, and the content of MedPAC’s next report to Congress.

As thought leaders in health law, Epstein Becker Green monitors MedPAC developments to gauge the direction of the health care marketplace. Our five biggest takeaways from the December meeting are as follows:

  1. MedPAC proposes replacing the Merit-Based Incentive Program with a new Voluntary Value Program.

MedPAC provided an overview of the Chairman’s draft recommendation for an alternative to the Merit-Based Incentive Program (“MIPS”). As discussed in the October and November meetings, MedPAC is concerned that the MIPS is burdensome, inequitable, and will neither improve care for beneficiaries, nor move the Medicare program and clinicians towards high-value care. Because clinicians are reporting in 2017 for the 2019 payment year, MedPAC feels it is imperative that the Congress act now. The Chairman’s draft recommendation asks the Congress to eliminate the current MIPS and establish a new voluntary value program (“VVP”) in fee-for-service Medicare.

The proposed VVP would use a uniform set of population-based measures in the categories of quality, patient experience, and cost or value. The measures would assess care across time and delivery systems, align with other Medicare value-based purchasing programs and advanced alternative payment model (“A-APMs”), and are consistent with outcomes important to beneficiaries and the program. Clinicians would join voluntary groups of other clinicians whose performance as a whole would determine if they qualified for a value payment. Value payments would be funded by a “withhold” applied to all participating clinicians.

Congress will still need to consider and discuss the various tradeoffs, including the size of the withhold and the value payment, as well as how the voluntary group’s composite score would be calculated.

  1. MedPAC reports on payment adequacy and updates for Hospice Services.

MedPAC discussed the Chairman’s draft recommendation to the Congress for Hospice Services. The Chairman’s draft recommendation reads: “The Congress should eliminate the fiscal year 2019 update to the hospice payment rates.” Given that the indicators of payment adequacy within the current system have shown favorable results and the industry has sustained comfortable profit margins, MedPAC believes that hospice providers will be able to cover cost increases in 2019 without any increase in their payment rates. In 2015, the aggregate margin for the industry was 10%, and the marginal profit was 13%. For 2018, the projected aggregate margin for hospice is 8.7%. Additionally, MedPAC reported an increase in both the supply of hospice providers, and in the use of hospice. The number of providers for hospice services increased by 4% in 2016, and approximately 1.4 million beneficiaries elected the hospice benefit. MedPAC also saw a growth in the total number of days beneficiaries remained in hospice, reaching 100 million days in 2016. Specifically, MedPAC noted that longer stays were generally recognized to be more profitable than shorter stays. As a result, MedPAC attributes differences in financial performance across different types of hospice providers largely to the length of stay.

MedPAC expects this recommendation to have no adverse impact on beneficiaries nor the providers’ willingness or ability to provide hospice care.

  1. MedPAC recommends a new payment system within each post-acute care setting.

MedPAC followed up November’s discussion regarding methods to increase the equity of payments within each post-acute care (“PAC”) setting, by combining the setting-specific and PAC prospective payment system (“PAC PPS”) relative weights to establish payments in each setting (e.g., Skilled Nursing Facilities (“SNFs”), Home Health Agencies (“HHAs”), Inpatient Rehabilitation Facilities (“IRFs”), and Long-Term Care Hospitals (“LTCHs”)).  This would be done prior to implementing a unified payment system.  Specifically, MedPAC is concerned that the current PAC payment system fosters different payment for the treatment of similar conditions merely because of different settings, lacks evidence-based guidelines for treatment, and has the effect of incentivizing providers to avoid medically complex patients.

MedPAC recommends blending the current relative weights and the relative weights from the PAC PPS, which will shift payments across conditions. Payments will then be more closely aligned with the cost of care across conditions and thus increase the equity of payments within each setting.  This payment redistribution would, for example, increase payments for medically complex care while decreasing payments for patient stays that involve therapy not related to a patient’s condition.  Payments for providers would be redistributed based on the mix of conditions they treat and their current therapy practices.  The result would increase payments to nonprofit providers and hospital-based providers, and decrease payments to for-profit facilities and freestanding providers.

The Chairman’s draft recommendation will ask Congress to direct the Secretary to begin basing Medicare payments to PAC providers on a blend of the setting-specific relative weights and the unified PAC PPS relative weights in fiscal year 2019.

  1. MedPAC recommends updating the payment system for Skilled Nursing Facilities.

Skilled Nursing Facilities (“SNFs”) Medicare payments are very high when compared to the cost of care. In 2008, MedPAC recommended revising the prospective payment system (“PPS”) because it found that although a provider’s costs increases as more therapy is furnished, payments increase even more, thereby making therapy more profitable if furnished than if not furnished.  Therefore, consistent with the Chairman’s draft recommendation, MedPAC recommends: (1) eliminating the market basket for fiscal years 2019 and 2020, (2) directing the Secretary to report to Congress on the impacts of the revised PPS, and (3) making any additional adjustments needed to more closely align payments with the costs in fiscal year 2021.

Implementing the revised SNF PPS would redistribute payments across conditions and narrow profitability differences across providers. This would enable MedPAC to recommend, and for policymakers to implement, a level of payments that would more closely reflect the cost of care.  According to MedPAC, the revised PPS would not have any adverse impact on beneficiaries, but would increase access to care for medically complex patients.  Payments would shift from freestanding SNFs and for-profit SNFs to hospital-based and non-profit providers.  This would result in a reduction of disparities in Medicare margins across providers.

  1. MedPAC updates payments for hospital inpatient and outpatient services.

MedPAC expects negative Medicare margins in 2018, based on 2016 margins, policy changes during 2017 and 2018, expected price inflation, and mandated ACA adjustments. Yet, MedPAC expects hospitals to continue to have financial incentive to take on Medicare patients because projected Medicare revenues are expected to exceed marginal costs in 2018.  Accordingly MedPAC’s estimated update for inpatient and outpatient rates for 2019 will be 1.25% if current estimated market basket for 2018 remains at 2.8%.  Accordingly, the Chairman’s draft recommendation asks Congress to increase the 2019 payment rate for acute-care hospitals by 1.25%.  MedPAC predicts that the overall Medicare margin will decline from negative 9.6% in 2016 to about negative 11% in 2018.  MedPAC also expects cost growth to be larger than payment updates, which are equal to expected input price inflation, as the margin declines due to expected cost growth around 2.5% per year.  MedPAC does not expect any impact on program spending or on beneficiaries or providers.

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