MedPAC Votes to Recommend Wage Index and Site-Neutral Payment Policies

April 18, 2023

At its April meeting, the Medicare Payment Advisory Commission (MedPAC) voted to recommend changes to the wage index, aligning payments across ambulatory settings, implementing a unified post-acute care (PAC) prospective payment system (PPS), and revising payments for Part B drugs. These recommendations will appear in MedPAC’s June report to Congress. MedPAC also discussed safety net payments for skilled nursing facilities (SNFs) and home health agencies (HHAs) and continued work on telehealth and behavioral health payment issues.

MedPAC has expressed concern that the current Medicare wage index system fails to accurately reflect differences in labor costs across geographic areas and creates inequities across providers. To address this, MedPAC voted to recommend that Congress repeal the existing Medicare wage index statutes, including current exceptions (e.g., reclassifications), and require the Department of Health and Human Services (HHS) Secretary to phase in a new Medicare wage index system for hospitals and other types of providers. The new wage index system would 1) use all-employer, occupation-level wage data with different occupation weights for each provider type, 2) reflect local area-level differences in wages between and within metropolitan statistical areas and statewide rural areas, and 3) smooth wage index differences across adjacent local areas. MedPAC acknowledged that under its illustrative example, funds would be redistributed from high-wage-index hospitals (particularly those benefitting from wage-index exceptions) to low-wage-index hospitals, and recommended a transition period to mitigate negative impacts. MedPAC also argued that any needed additional support should be targeted specifically to those providers and not made inefficiently through the wage index. GNYHA is modeling MedPAC’s recommendation to determine its impact on member hospitals.

MedPAC also voted to recommend that Congress more closely align payment rates across ambulatory settings for selected services that are safe to provide in all settings and when doing so does not pose a risk to access. MedPAC expressed concern that payment rates often differ for the same service across the hospital outpatient department, ambulatory surgical center (ASC), and physician office settings. MedPAC’s analysis identified 66 ambulatory payment classifications (APCs) to align payment rates, including 57 outpatient PPS (OPPS) and ASC rates to align with the physician fee schedule and nine OPPS rates to align with the ASC rates. While MedPAC also incorporated a budget neutrality adjustment to increase the payment rate for APCs that were not aligned, resulting in no change to aggregate spending, the proposal would move $7.75 billion from aligned APCs to non-aligned APCs.

MedPAC also voted to recommend a package of policy options to address the price of Medicare Part B drugs. MedPAC recommended that Congress 1) give the HHS Secretary the authority to cap the Medicare payment rate of Part B drugs and biologics that are approved under the accelerated approval program should the drug or biologic meet certain criteria, 2) allow the HHS Secretary to establish a single average sales price (ASP)-based payment rate for drugs and biologics with similar health effects, and 3) require the HHS Secretary to reduce add-on payments for Part B drugs paid based on the ASP to minimize the relationship between ASP and add-on payments and to eliminate add-on payments for Part B drugs paid based on wholesale acquisition cost.

Finally, MedPAC voted to forward to Congress its report on a unified PAC PPS mandated by the Improving Medicare Post-Acute Care Transformation Act of 2014. Design features include a PAC stay as a unit of service, a common risk adjustment across settings, and an adjuster for home health care. The design would not include adjusters for rural location or for beneficiaries with low incomes or prior hospital stays.

MedPAC also continued its work on SNF and freestanding HHA safety net payments. MedPAC analyzed 2021 fee-for-service Medicare claims to identify beneficiaries who received a Part D low-income subsidy (LIS). The analysis determined that 64% of SNFs had LISs that were greater than 40%, whereas 35% of HHAs had LISs greater than 40%. MedPAC’s findings also indicate that because SNFs and HHAs had higher shares of LIS stays, their median Medicare margins were approximately 18%, so MedPAC concluded that additional funding is not warranted at this time. However, MedPAC noted that additional research on cost per unit of service, beneficiary characteristics, case mix, and utilization is needed to understand the impact of treating LIS beneficiaries on SNF and HHA financial performance. MedPAC also discussed economic and racial disparities affecting access to and quality of care and offered suggestions for future analyses, such as looking into case-mix adjusted nursing hours, total nurse staffing turnover, and minimum nurse staffing ratios as measurements that could be tied to quality for LIS providers.

MedPAC staff presented updated findings on their work on telehealth in Medicare. MedPAC’s analysis found that telehealth expansion during the COVID-19 public health emergency was associated with improved access to care for some beneficiaries, but did not prove that telehealth improved quality outcomes or lowered costs. MedPAC stated that more evidence is needed before making permanent policy changes. MedPAC will include a chapter on its telehealth efforts in its June report.

MedPAC staff also continued their efforts on a Congressional request for a report on behavioral health. In its April session, MedPAC focused on findings from its analysis of inpatient psychiatric facilities (IPFs). MedPAC reported an aggregate Medicare IPF margin of -9.4% in 2021, with substantial variation among IPFs, including higher margins for freestanding for-profit IPFs and lower margins for hospital-based non-profit IPFs. MedPAC will include a chapter on its work on both inpatient and outpatient behavioral health in its June report.