MedPAC Presents Draft Recommendations on Reforming IME Payments

March 15, 2021

At its March public meeting, the Medicare Payment Advisory Commission (MedPAC) discussed its draft recommendations for various Medicare payment and policy issues, including reforming indirect medical education (IME) payments. The Commission will vote on its final recommendations next month for likely inclusion in its June 2021 Report to Congress.

MedPAC staff continued to develop their analysis of IME payments and presented an illustrative, reformed IME policy that includes both inpatient and outpatient services for fee-for-service and Medicare Advantage beneficiaries (exclusive of separately payable drugs and devices), revises the teaching intensity measure to a resident-to-patient ratio (rather than the current resident-to-bed ratio), and bases payments on empirically justified estimates of teaching hospitals’ additional costs not otherwise accounted for in the prospective payment system. The reformed IME policy would be budget neutral and maintain the current level of aggregate IME payments but redistribute a portion of the current inpatient IME funding toward outpatient IME funding. Under the proposal, IME payments would shift away from large and urban hospitals toward small and rural hospitals. Hospitals with a high share of low-income patients would also see a reduction in IME payments.

The Commission discussed its draft recommendation that Congress should require the Centers for Medicare & Medicaid Services (CMS) to transition to an empirically justified IME adjustment for both inpatient and outpatient Medicare payments. MedPAC noted that Congress could grant CMS flexibility on the implementation of this policy change, including whether to phase in the policy for a subset of teaching hospitals that are more substantially affected or that waive beneficiary cost sharing on outpatient IME payments.

MedPAC staff also presented Congress and the Department of Health and Human Services (HHS) Secretary with the following draft recommendations on separately payable drugs, vaccine coverage and payment, and alternative payments models (APMs):

  • Separately Payable Drugs in the Outpatient Prospective Payment System (OPPS). Congress should modify the OPPS pass-through drug policy to include only drugs and biologics that function as supplies to a service and that are clinically superior to packaged analogs. The HHS Secretary should specify that OPPS’s separately payable non-pass-through policy applies only to drugs and biologics that are the reason for a visit and meet a defined cost threshold.
  • Vaccine Coverage and Payment. Congress should cover all appropriate preventive vaccines and their administration under Part B instead of Part D without beneficiary cost sharing and modify Medicare’s payment rate for Part B-covered preventive vaccines to be 103% of the wholesale acquisition cost, and require vaccine manufacturers to report average sales price data for CMS analysis.
  • APMs: The HHS Secretary should implement a more coordinated portfolio of fewer APMs that support the strategic objectives of reducing spending and improving quality. MedPAC believes that a smaller, more aligned set of models will increase the effectiveness of incentives to provide care more efficiently.