MedPAC: Disparity Between Not-for-Profit and For-Profit Hospitals’ Cost-Cutting Ability During Pandemic

During its virtual public meeting last week, the Medicare Payment Advisory Commission (MedPAC) detailed the financial impacts of COVID-19 and Federal stimulus funding on health care providers. Based on a sample of large not-for-profit and for-profit hospital systems, MedPAC suggested that not-for-profit hospitals’ limited ability to reduce costs compared to their for-profit counterparts directly impacted their profitability during this year’s second quarter. MedPAC did not note how geographic location varied within the hospital systems selected for the sample or whether some or all of the hospital systems in the sample were treating similar levels of COVID-19 patients during the second quarter (which could impact a hospital’s cost-cutting ability).

Based on the sample of hospital systems that MedPAC analyzed, both not-for-profits and for-profits faced similar percentage declines in revenue in the second quarter (-17% for not-for-profits and -15% for for-profits), but not-for-profits reduced their operating expenses by only 1% during this time while for-profits reduced their operating expenses by 65%. Despite receiving similar levels of Federal grant funding—as a percentage of revenues, the grants covered 50% and 56% of revenue declines for not-for-profit and for-profit systems, respectively—the second-quarter operating margins for the not-for-profit systems ranged from -13% to +5% while for-profit margins ranged from +1% to +14%.

Congressionally Mandated Report: PAMA Changes to the Medicare CLFS

As part of its work on a Congressionally mandated report due in June 2021, MedPAC staff presented their initial findings on how the Protecting Access to Medicare Act of 2014 (PAMA) impacted the clinical laboratory fee schedule (CLFS). PAMA required Medicare to set CLFS payment rates based on the weighted median or private payer rates reported by laboratories starting in 2018. Private payer-based CLFS rates are lower than Medicare’s pre-PAMA rates. Stakeholders have argued that the higher payment rates generally received by hospital and physician-based laboratories are underrepresented when setting CLFS weights, resulting in artificially low rates. Additionally, MedPAC’s analysis found that spending increased for independent labs between 2017 and 2019 due to new high-cost tests but decreased for hospital and physician-based laboratories due to their focus on lower-cost routine tests. Medicare has changed reporting requirements to include more laboratories, but results will not be available until 2022. In future sessions MedPAC will provide further analysis, including a study of a data collection process that would result in a more representative sample.

Telehealth

Medicare significantly expanded telehealth options for providers to care for their patients during the COVID-19 public health emergency (PHE), and providers have advocated that the Centers for Medicare & Medicaid Services make these changes permanent. MedPAC discussed options and considerations for continuing the telehealth coverage expansion after the PHE ends, including: 1) whether to allow telehealth expansions to continue for clinicians in Advanced Alternative Payment Models that assume financial risk for total spending, and 2) whether Medicare should revert to pre-PHE telehealth rules for fee-for-service beneficiaries or allow limited expansions given concerns about fraud and abuse and the potential overuse of services. The presentation and discussion also addressed the following topics:

  • Payment for telehealth services (possibly at a lower rate after the PHE)
  • Possible continuation of audio-only telehealth services
  • Allowed communication devices and HIPAA compliance

MedPAC also discussed how to best provide telehealth services to low-income communities and rural areas where beneficiaries may not have smartphones, computers, and high-speed internet, expressing concern that expanding telehealth may create a larger divide in health care access.

Exploring Private Equity and Medicare

Congress has requested that MedPAC study the role that private equity plays in Medicare. MedPAC noted that private equity’s involvement in health care has been growing in recent years, with private equity funds spending $47 billion on buyout deals involving health care providers in 2019. MedPAC plans to study:

  • Gaps in Medicare data on private ownership (i.e., ways to improve data from the Provider Enrollment, Chain, and Ownership System)
  • Private equity business models when investing in health care
  • Effects of private equity ownership on costs, beneficiaries, and providers
  • Private equity involvement in the Medicare Advantage program

MedPAC will respond to the Congressional request—which does not require a MedPAC recommendation—in its June 2021 report.