MedPAC Recommends Increasing Hospital Payments by 4.1% in 2024, Reforming Safety Net Payments

January 23, 2023

The Medicare Payment Advisory Commission (MedPAC) voted on recommendations to Congress on 2024 payment update factors at its January meeting. In determining payment adequacy, MedPAC staff evaluated beneficiaries’ access to and quality of care, access to capital, and Medicare payments and provider costs.

MedPAC’s analysis, presented at its December 2022 meeting, found that hospital payment adequacy indicators generally remained positive in 2021 partly due to significant COVID-19 Federal assistance. While national all-payer margins were positive in 2021, Medicare margins remained negative at -6.2%, and the 2023 Medicare margin is projected to decrease to approximately -10%. Based on its analysis, MedPAC voted to recommend updating Medicare payment rates for acute care hospitals by the amount specified under current law (projected to be 3.1%) plus 1%.

MedPAC also voted to recommend that Congress redistribute disproportionate share hospital (DSH) and uncompensated care (UC) payments ($11.9 billion in 2019) through a new Medicare safety net index (MSNI) in fiscal year 2024. As presented at previous meetings, MedPAC’s MSNI is the sum of 1) a hospital’s share of Medicare beneficiaries that are dually eligible for Medicaid or receive a low-income subsidy under Medicare Part D, 2) UC costs as a share of revenue, and 3) one-half of the Medicare share of inpatient days. The safety net payments would be distributed via an add-on to fee-for-service inpatient prospective payment system (PPS) and outpatient PPS claims scaled in proportion to each hospital’s MSNI. Commensurate amounts for Medicare Advantage (MA) claims would be paid directly to hospitals and excluded from MA benchmarks. MedPAC also presented options to ease the fiscal impact of the proposal by increasing the total funding by $2 billion, transitioning to the new policy over several years, or implementing a stop-loss policy. GNYHA is modeling MedPAC’s recommendation to determine the impacts on our member hospitals.

MedPAC voted to recommend updates for other provider settings:

  • Physicians and other professional health services: 1.25% (50% of the projected increase in the Medicare Economic Index) above the current law update of 0%
  • Outpatient dialysis services: Current law (projected 1.5%)
  • Hospice services: Current law (projected 3.1%)
  • Skilled nursing facilities: Reduce 2023 payments by 3%
  • Home health care services: Reduce 2023 payments by 7%
  • Inpatient rehabilitation facilities: Reduce 2023 payments by 3%

MedPAC also voted to recommend the following:

  • Congress should enact a non-budget-neutral add-on payment to the physician fee schedule for services provided to low-income Medicare beneficiaries (15% for primary care clinicians and 5% for non-primary care clinicians)
  • The Department of Health and Human Services Secretary should wage-adjust the hospice aggregate cap and reduce it by 20%

MedPAC staff also presented a package of policies to improve payments for Part B drugs. These include capping the payment rate of drugs and biologics that are approved under the accelerated approval program until the product is converted to full approval, establishing a single average sales price (ASP)-based payment to drugs and biologics with similar health effects, and reducing add-on payments for drugs paid based on ASP and eliminating the add-on for drugs paid based on wholesale acquisition cost to improve financial incentives. MedPAC will present a draft recommendation at its March 2023 meeting.

In response to a Congressional request for information on outpatient behavioral health services, MedPAC found that 4.9 million beneficiaries received Part B behavioral health services in 2021, resulting in $4.8 billion in spending, and that these beneficiaries tend to be more vulnerable and costly. MedPAC’s findings will be summarized in an informational chapter in its June 2023 Report to Congress.

MedPAC also presented findings from its work on a Congressionally mandated report on telehealth. MedPAC’s analysis found that telehealth use peaked in the second quarter of 2020, with 9.8 million beneficiaries using services totaling $1.95 billion in spending. Telehealth use fell to 3.5 million beneficiaries and $827 million in spending in the fourth quarter of 2021. MedPAC will continue this work in April, focusing on the impact of expanded telehealth coverage (due to the COVID-19 public health emergency) on access to and quality of care.