MedPAC Recommends 2% Update to Hospital Payment Rates

January 27, 2020

The Medicare Payment Advisory Commission (MedPAC) unanimously voted at its January public meeting to recommend 2021 payment updates for the various Medicare provider settings.

MedPAC recommended a 2% payment update for hospital inpatient and outpatient services, plus the value of an additional 0.8% to be funded through its recommended hospital value incentive program (HVIP). (The HVIP would restructure Medicare’s performance-based payment programs.) MedPAC staff noted that the recommendation would increase total payments by 3.3% due to the 2% update, the additional 0.8% value of the HVIP, and the elimination of current quality program penalties amounting to 0.5%. The hospital inpatient and outpatient services update factor for Federal fiscal year 2021 is 2.8% under current law.

MedPAC also voted to recommend the following updates for other provider settings:

  • Physicians and other professional health services: No update (current law)
  • Outpatient dialysis services: 2% (current law)
  • Skilled nursing facilities: No update
  • Home health care services: Reduce rates by 7%
  • Inpatient rehabilitation facilities: Reduce rates by 5%
  • Long-term care hospital services: 2%
  • Hospice services: No update
  • Ambulatory surgical centers (ASCs): No update (due to lack of cost report data)

MedPAC voted to recommend that the Secretary of Health and Human Services require ASCs to report cost data and wage-adjust and reduce the annual aggregate cap on payments a hospice provider can receive by 20%.

MedPAC also discussed its response to a Congressional request to study whether the 340B Drug Pricing Program creates incentives for participating hospitals to use more expensive drugs. MedPAC, which focused its study on cancer drug spending, found that while there was evidence of higher drug spending at 340B hospitals for some cancer types, the effects of the spending were not generalizable to other cancers or conditions. MedPAC also found that the effects on cost sharing for beneficiaries will likely be small.

Lastly, MedPAC discussed potential policy options to refine the Transitional Drug Add-On Payment Adjustment (TDAPA) under the end-stage renal disease (ESRD) prospective payment system (PPS). The TDAPA originally provided additional payment for drugs that are not in one of 11 existing functional categories of drugs included in the ESRD PPS. The Centers for Medicare & Medicaid Services recently expanded the TDAPA program to include some drugs that are in existing functional categories. MedPAC was concerned that making these drugs eligible for TDAPA and paying for them separately through the add-on could inhibit competition among drugs in the same functional category and eliminate the incentive to reduce new drug launch prices. The TDAPA for new drugs in an existing functional category would also duplicate payment because the ESRD PPS already accounts for these drugs.

MedPAC was also concerned that the TDAPA will increase payment for new drugs that offer no clinical improvement, because the TDAPA does not require new drugs to meet substantial clinical improvement criteria. The Commission discussed two potential policy options to remedy these concerns: 1) eliminate the TDAPA for new drugs in an existing functional category, or 2) limit the TDAPA to new drugs that offer clinical improvements. MedPAC’s recommendation will be published in its June report.