MedPAC Recommends 2% Update to 2022 Hospital Payment Rates

January 25, 2021

At its January public meeting, the Medicare Payment Advisory Commission (MedPAC) voted to recommend Medicare rate updates based on payment adequacy indicators across provider settings such as beneficiaries’ access to care, quality of care, access to capital and Medicare payments, and provider costs.

MedPAC recommended a 2% payment update for hospital inpatient and outpatient services. Payments for inpatient services would also get an additional 0.5% statutory increase (partial restoration of documentation and coding adjustment) and the value of an additional 0.8% to be funded through MedPAC’s previously recommended hospital value incentive program, which would restructure Medicare’s performance-based payment programs. The recommended 3.3% total update to inpatient services is greater than what was estimated for 2022 under current law (2.4%), while the recommended 2% outpatient update is below current law.

MedPAC found positive indicators of hospital payment adequacy for access to care, quality of care, and access to capital, despite negative overall hospital Medicare margins. Overall hospital Medicare margins rose slightly from -9.3% in 2018 to -8.7% in 2019, and MedPAC projected margins would improve to -6% in 2021 due to higher payment-rate updates in 2020 and 2021 than in previous years and the suspension of the Medicare sequestration during the COVID-19 public health emergency (PHE). MedPAC briefly discussed the COVID-19 PHE’s impact on hospital finances, noting that while hospitals overall have not been negatively impacted, there is significant variation among hospitals. While MedPAC staff argued that the pandemic’s effects will be temporary, some Commissioners said the impact will be long lasting despite targeted Federal relief.

The Commission also recommended updates for other provider settings:

  • Physicians and other professional health services: No update (current law)
  • Ambulatory surgical centers: No update
  • Skilled nursing facilities: No update
  • Home health care services: 5% reduction from 2021 payment rate
  • Inpatient rehabilitation facilities: 5% reduction from 2021 payment rate
  • Long-term care hospital services: 2% increase from 2021 payment rate
  • Hospice services: No update
  • Outpatient dialysis services: No update

The Commission also continued discussions from its December public meeting on policy options for Medicare telehealth coverage beyond the COVID-19 PHE. MedPAC will include recommendations on telehealth coverage in its March report to Congress. MedPAC staff presented updated options to expand telehealth on a permanent basis, including by covering certain telehealth services provided to all beneficiaries, and in the beneficiaries’ homes. MedPAC also presented options to limit telehealth services, and changes to how telehealth services are paid for relative to payment during the PHE.

The Commission also continued discussions on Medicare vaccine coverage and payment policy options, including covering all appropriate preventive vaccines and their administration under Part B instead of Part D, modifying the payment rate from 95% of average wholesale price to 103% of wholesale acquisition cost, and requiring vaccine manufacturers to report average sales price data.

Finally, MedPAC staff presented options to increase savings and improve quality in alternative payment models, including by implementing a smaller suite of coordinated models, developing second-generation models only when specific criteria have been met, and reducing or eliminating changes to a model’s features once it is active.