Medicare Payment Update Recommendations

The Medicare Payment Advisory Commission (MedPAC) released its March 2018 report detailing its payment update recommendations to Congress, which the Commissioners voted on in January.

To evaluate payment adequacy, MedPAC considers beneficiaries’ access to care, quality of care, providers’ access to capital, and Medicare margins. Most indicators were positive for hospital inpatient and outpatient services, with providers having excess inpatient capacity, strong access to bond markets, and improvements in mortality and readmission rates and patient satisfaction. Although overall Medicare margins are expected to decrease from -9.6% in 2016 to -11% in 2018, MedPAC believes that providers still have an incentive to treat Medicare patients because payment rates are sufficient to generate a marginal profit.

Based on its analysis, the Commission recommended updating Medicare hospital payments in Federal fiscal year (FY) 2019 by the amount determined under current law (1.25%). MedPAC’s Medicare payment update recommendations across the various settings are summarized in the table below:

Payment Setting Rate Update
Hospital inpatient and outpatient services 1.25% (current law)
Physician and other health professional services 0.5%* (current law)
Ambulatory surgical center services No update; require ASCs to report cost data
Outpatient dialysis services 1.4% (current law)
Skilled nursing facility services No update
Home health care services Cut rates by 5% and rebase payment system beginning in 2020; eliminate use of therapy visits as a factor in determining payments
Inpatient rehabilitation facility services Reduce rates by 5%
Long-term care hospital services No update
Hospice services No update

*Subsequent to the Commission’s vote on this recommendation, the Bipartisan Budget Act of 2018 changed the 2019 fee schedule update to 0.25%.

In June 2017, MedPAC recommended that Congress create a unified payment system for the four post-acute care (PAC) settings—skilled nursing facilities, home health care, inpatient rehabilitation facilities, and long-term care hospitals—beginning in FY 2021. The Commission believes the new system would increase access for medically complex beneficiaries and reduce disparities in Medicare margins across providers.

In its March report, MedPAC recommended either no update or a lower payment rate for each PAC setting before implementing the PAC PPS. Additionally, the Commission recommended basing payments to PAC providers on a blend of each sector’s setting-specific relative weights and the unified PAC PPS relative weights in FYs 2019–20. MedPAC argued that redistributing these payments would encourage providers to make the changes needed to succeed under a unified PAC PPS, and provide the experience to inform its implementation.

Redesigning MIPS

MedPAC also analyzed the Merit-Based Incentive Payment System (MIPS) and concluded that MIPS will not succeed in helping beneficiaries choose clinicians, helping clinicians improve value, or reward value. The Commission recommended eliminating MIPS and establishing a new “voluntary value program” in fee-for-service Medicare in which clinicians can elect to be measured as part of a group and qualify for a payment based on their group’s performance on a set of population-based measures.

MACPAC Analysis of DSH Allotments to States

The Medicaid and CHIP Payment and Access Commission (MACPAC) also released its monthly report to Congress, including its annual mandated analysis of disproportionate share hospital (DSH) allotments to states. Medicaid DSH cuts mandated by the Affordable Care Act have been delayed several times and are scheduled to go into effect in FY 2020, with a $4 billion reduction in Federal funding. Reductions are scheduled to increase to $8 billion per year in FYs 2021–25, with an estimated $1.3 billion annual impact on New York.

MedPAC projected FY 2020 DSH allotments before and after the cuts, and estimated that in 22 states and the District of Columbia, reductions will exceed the amount that charity care and bad debt declined over 2013–15, including in New York. Additionally, the Medicaid shortfall grew by $3 billion nationally over 2013–15 due to increased enrollment. The Commission believes that DSH payments should be more appropriately distributed to hospitals that serve a high share of Medicaid and low-income uninsured patients, and that have higher levels of uncompensated care.