MedPAC Focuses on Impact of COVID-19 on Medicare Payments

September 20, 2021

The Medicare Payment Advisory Commission’s (MedPAC) first public meeting of the 2021-22 session focused on various Medicare payment issues, including the effects of the COVID-19 public health emergency (PHE) on Medicare payments and the design of a value incentive program (VIP) for post-acute care (PAC).

The meeting included an update on the Medicare program’s current state. MedPAC staff covered the short-term context for payment policy, focusing on COVID-19’s impact on Medicare beneficiaries and noting that people over age 65 comprised 14% of COVID-19 cases and 80% of COVID-19 deaths. MedPAC also noted that 81% of people over age 65 are now fully vaccinated and that this age group maintained access to care during the pandemic.

MedPAC staff discussed Medicare payment policy in the broader context by considering health care spending trends, noting that due to increases in enrollment and service intensity, Medicare spending is expected to double from 2019 to 2029, reaching $1.5 trillion based on pre-pandemic projections. MedPAC argued that reducing low-value care could slow this growth. The Medicare Trust Fund, which already spends more than it collects in payroll taxes, is projected to be insolvent as of 2026. MedPAC also noted that by 2036, spending on Medicare, other health programs, Social Security, and interest payments will equal Federal revenues. MedPAC also noted that Medicare premiums and cost-sharing per beneficiary are growing—and reached 24% of the average Social Security benefit in 2020.

The Commission discussed how COVID-19 will affect MedPAC’s assessment of Medicare payment adequacy, noting that it will evaluate its payment adequacy indicators using 2020 data to inform its rate update recommendations for 2023. MedPAC anticipates that COVID-19 will affect payment adequacy indicators due to volume changes, suspensions in quality reporting, and changes in provider costs and payments, including supplemental payments. Also, due to providers’ different cost reporting periods, 2020 cost reports reflect varying numbers of months that overlap with the PHE. The Commission discussed potential strategies for developing appropriate payment update recommendations such as relying more heavily on data from prior years for certain indicators and providing supplemental recommendations in addition to the traditional payment update recommendation when needed. MedPAC staff will present their draft recommendations in December.

MedPAC staff also highlighted the design of a PAC VIP that aligns with the Consolidated Appropriations Act, 2021 requirement for it to report on a prototype value-based payment program for a unified PAC prospective payment system (PPS) by March 15, 2022. MedPAC defined five design elements—consistent with its June 2021 recommendation—for a skilled nursing facility (SNF) VIP to replace the current SNF value-based purchasing program. It also noted the results of illustrative modeling of the design. The design elements include the following:

  • Small set of outcome and resource use measures. The illustrative model scored hospitalizations within stay, Medicare spending per beneficiary, and successful discharge to the community.
  • High-reliability standard. MedPAC’s model required a minimum of 60 stays for each measure and a three-year performance period to incorporate low-volume providers.
  • Minimize the “cliff” effect in award distribution by using a continuous performance scale. MedPAC’s initial design scores providers within their settings but notes that it could transition to common performance targets once a unified PAC PPS is implemented.
  • Adjust payments for social risk factors. MedPAC’s model used providers’ shares of dual eligible patients and area deprivation index measures to define peer groupings but found that the relationship between social risk and performance varied by setting and social risk measure, indicating that peer grouping may not always be needed.
  • Distribute the entire pool of withheld funds as performance-based rewards. The illustrative model used a 5% withhold.

The Commission’s discussion of the PAC VIP focused on how to appropriately measure social risk to define peer groups and how to determine whether peer grouping is warranted.