At its October public meeting, the Medicare Payment Advisory Commission (MedPAC) discussed potential revisions to Indirect Medical Education (IME) payments and advanced alternative payment models (A-APMs), and concerns about trends in vertical integration.

The Commission discussed potential recommendations to revise IME payment policy, building on work presented at MedPAC’s September 2019 public meeting. According to MedPAC, Medicare made $10 billion in IME payments in 2018 to support teaching hospitals. MedPAC staff expressed concerns with the IME program’s current structure, including that it only makes payments in the inpatient setting, the payments are above the empirically justified level, the treatment of fee-for-service (FFS) and Medicare Advantage (MA) payments is inconsistent, and IME payments could provide adverse incentives by providing additional payments where teaching hospitals do not have additional costs (i.e., separately payable drugs).

To address these concerns, MedPAC staff presented a revised IME policy that would redistribute IME payments proportionally based on a teaching hospital’s additional costs in both the inpatient and outpatient setting. MedPAC staff noted that this could be done in a budget neutral manner that would still pay above the empirically justified amounts. Under this model, IME payments would be provided for the care of MA beneficiaries in all settings, and IME adjustments would not apply to separately payable drugs. MedPAC staff reported that, absent behavioral change, this policy approach would reduce IME payments for the most “inpatient-centric teaching hospitals” by 22% and increase IME payments for the most “outpatient-centric teaching hospitals” by 28%. The policy change would also result in a 1.5% reduction in total FFS payments for the more inpatient-centric group and a 1.5% increase for the more outpatient-centric group. MedPAC’s analysis also found that this policy would hurt teaching hospitals with a high share of low-income patients and would experience a 0.5% decrease in total FFS payments.

MedPAC generally supported these policy changes, but some commissioners expressed concerns about the negative effects on hospitals with a high share of low-income patients, and also were concerned that a policy change to link IME payments directly to hospital-based outpatient services could encourage hospitals to acquire more physician practices. Some commissioners called for more extensive changes to the IME program, including expanding beyond the hospital setting to other types of providers and creating a more population-based approach to the policy.

The Commission also discussed A-APMs and potential areas for improvement. MedPAC staff’s evaluation of A-APMs found that quality of care generally has been maintained in existing models, with some measures improving. Some models showed reductions in per-beneficiary Medicare spending before performance payments were awarded to the participants, but overall, most models did not result in any net savings for the Medicare program. The Commission discussed ways to potentially improve A-APMs such as by strengthening financial incentives for providers to reduce costs, making greater use of mandatory participation, and more actively engaging beneficiaries by giving them information on high-value providers. They also discussed ways to improve the evaluation of models by testing fewer models that include more providers over a longer period, and randomly assigning providers to treatment and control groups. The Commission will develop recommendations in future sessions.

Finally, MedPAC continued its previous efforts on vertical integration, noting that by 2018, 51% of physicians and 72% of hospitals were affiliated with health systems. This session focused on vertical integration between large health plans and outpatient providers, pharmacy benefit managers, and post-acute care services. MedPAC staff noted that in recent years, both health systems and health plans have become more vertically integrated, and while some mergers may improve quality and efficiency, not all benefit Medicare and beneficiaries due to less market competition. The Commission stressed the importance of considering whether new Medicare policies will encourage vertical integration when they are developed.