MedPAC Proposes 2% Increase to 2023 Hospital Payment Rates

December 20, 2021

At its December 2021 public meeting, the Medicare Payment Advisory Commission (MedPAC) discussed payment adequacy across provider settings and draft recommendations to Congress on 2023 payment update factors. On payment adequacy, MedPAC staff evaluated beneficiaries’ access to care, quality of care, access to capital and Medicare payments, and provider costs. The Commission will vote on the final recommendations in January.

MedPAC found that hospital payment adequacy indicators generally remained positive in 2020, but that overall Medicare margins remained deeply negative (-8.5% in 2020, roughly the same as in 2019). MedPAC noted that overall hospital Medicare margins would have been -12.6% in 2020 without Federal COVID-19 relief via the Provider Relief Fund and the Paycheck Protection Program, highlighting how critical these programs were in reducing hospital financial losses during the pandemic’s first year. MedPAC also noted that costs grew faster than payments for services in 2020, with inpatient prospective payment system payments and costs growing by 8.7% and 12.6%, respectively. Outpatient prospective payment system payments and costs grew by 13.5% and 24.4%, respectively. The faster growth in costs reflected hospitals’ allocation of fixed costs over lower service volumes, increasing the complexity of services and associated supplies, and continued growth of separately payable drugs in the outpatient setting.

Based on this analysis, MedPAC staff proposed a 2% payment update for hospital inpatient and outpatient services, as specified under current law. Payments for inpatient services would also increase by 0.5% to account for the partial restoration of the documentation and coding adjustment. The Commission maintained its position that any needed financial support in response to the pandemic should be separate from the annual Medicare payment updates and distributed in a targeted manner.

MedPAC staff presented the following draft update recommendations for other provider settings:

  • Physicians and other professional health services: Current law (no update)
  • Ambulatory surgical centers (ASCs): No update
  • Outpatient dialysis services: Current law (1.2%)
  • Hospice services: No update
  • Skilled nursing facilities: Reduce payments by 5%
  • Home health care services: Reduce payments by 5%
  • Inpatient rehabilitation facilities: Reduce payments by 5%
  • Long-term care hospital services: 2% (there is no current law update, but 2% reflects the projected market basket update minus the productivity adjustment)

MedPAC staff also presented draft recommendations for the Department of Health and Human Services Secretary to:

  • Require clinicians to use a claims modifier to identify audio-only telehealth services
  • Require ASCs to report cost data
  • Wage-adjust and reduce by 20% the hospice aggregate cap
  • Require hospices to report telehealth services on Medicare claims
  • Require home health agencies to report telehealth services provided during a 30-day period

In addition to its payment adequacy assessment and update recommendations, MedPAC’s March 2022 report will include a review of Bipartisan Budget Act of 2018 changes to the hospital inpatient low-volume payment adjustment and the home health payment system.