MedPAC Discusses Potential Updates to the Physician Fee Schedule and New 340B Drug Data

April 15, 2024

At its April meeting, the Medicare Payment Advisory Commission (MedPAC) presented various approaches to update the inflation factor used in the physician fee schedule (PFS), shared initial findings on 340B drug payment rates, and discussed continued telehealth use and options to lower payments to inpatient rehabilitation facilities (IRFs) for select conditions.

The Commission began a preliminary discussion on potential future approaches to update the PFS addressing three main concerns: 1) cost inflation captured by the Medicare Economic Index (MEI) consistently outpaces PFS updates, 2) Medicare pays different rates for the same services based on site-of-service, encouraging vertical consolidation, and 3) payment updates under current law provide a weak incentive to participate in advanced alternative payment models (A-APMs). MedPAC presented multiple policy approaches for future PFS updates: 1) update practice expenses by the hospital market basket minus productivity, 2) update payment rates by MEI minus one percentage point, and 3) extend the A-APM participation bonus for a few years. Most commissioners favored the second approach. This topic will appear as an informational chapter in the June 2024 Report to the Congress, and MedPAC will continue this work in the fall.

The Commission also reviewed an analysis of Medicare 340B drugs. The Consolidated Appropriations Act, 2021 gave MedPAC access to confidential national drug code level pricing data that drug manufacturers report to the Centers for Medicare & Medicaid Services. MedPAC’s initial analysis found that aggregate Medicare hospital outpatient payments for 340B drugs (paid at the average sales price plus 6%) exceeded 340B “price ceiling” costs (the maximum statutory price a manufacturer can charge for a covered outpatient drug) by 48% in 2022. MedPAC’s analysis included 189 Part B drug billing codes for single-source drugs, biologicals, and biosimilars and accounted for 97% of hospital outpatient spending for 340B drugs. The Commission does not currently plan to make recommendations on this topic.

In its June 2023 report, the Commission responded to a Congressional mandate to study the expansion of telehealth during the public health emergency. Congress extended many telehealth flexibilities until the end of 2024 and made permanent telehealth coverage for behavioral health services, recognizing telehealth’s potential to improve access to care. MedPAC provided an updated analysis to inform the extension of the telehealth flexibilities beyond 2024, highlighting that these flexibilities are unlikely to impede access to in-person care. MedPAC found that even if “telehealth-only” providers become more common, telehealth services could still improve access to care in areas with persistent access issues.

MedPAC’s analysis indicated that requiring an in-person visit could be disruptive, especially for behavioral health services, and presented alternatives to prevent payment abuse such as scrutinizing clinicians with outlier billing practices and prohibiting “incident to” billing. This topic will not appear in the June 2024 Report to the Congress.

The Commission’s 2023 report on a unified payment system for post-acute care stated that MedPAC would seek small scale opportunities to narrow Medicare payment differences across post-acute care providers. MedPAC is now evaluating options for lowering payment rates for select conditions in IRFs, due to sustained high margins. MedPAC provided three options for lowering IRF rates for conditions that may not require IRF-level care: 1) pay IRFs the same amount for the case as would be paid for skilled nursing facilities, 2) pay IRF costs, and 3) blend current IRF payments and costs. Many commissioners voiced support for the second option, calling it “directionally correct.” This topic will appear in the June 2024 Report to the Congress.