The Medicare Payment Advisory Commission’s (MedPAC) recently released June 2020 report to Congress covers various Medicare payment and health care delivery system issues.

Separately Payable Drugs in the Hospital Outpatient Prospective Payment System (OPPS)

MedPAC expresses concern that the criteria for identifying separately payable drugs, both through the pass-through and non-pass-through programs, does not appropriately balance promoting innovation with pressuring providers to be efficient. MedPAC is interested in this issue because separately payable drugs are reimbursed at the average sales price (ASP) plus 6% (or ASP -22.5% for 340B drugs), while other drugs are “packaged” as part of the OPPS rate for the related service. MedPAC outlines two principles that should be used in identifying separately payable drugs: 1) Drugs that are not ancillary—meaning they are the purpose for a visit, are high cost, treat a condition, and are usually administered by infusion—should be paid separately, and 2) drugs should show clinical superiority over other drugs to have separately payable status. MedPAC will provide further analysis on specific criteria in future reports.

Improving Medicare’s End-Stage Renal Disease (ESRD) PPS

MedPAC recommends two refinements to ESRD PPS payment adjustments:

  • Eliminate the transitional drug add-on payment adjustment for new drugs in an existing ESRD functional category. MedPAC states that this would pressure manufacturers to constrain price growth while maintaining the structure of the ESRD PPS and avoiding incentives to unbundle services.
  • Replace the distinct low-volume and rural payment adjustments with a single adjustment for “isolated” dialysis facilities. MedPAC would define isolated facilities as being located more than five miles from the nearest facility with consistently low volume (to be empirically derived).

Value-Based Payment in Medicare

MedPAC believes that incentives in the fee-for-service system drive unsustainable trends in Medicare spending and outlines a strategy to move towards value-based payments by encouraging providers to organize into “accountable entities.” MedPAC notes that while Medicare Advantage (MA) and accountable care organizations (ACOs) could be used as mechanisms to further value-based payments, both programs need improvements.

Challenges in Maintaining and Increasing ACO Savings

MedPAC notes that savings from the Medicare Shared Savings Program (MSSP) ACOs have been relatively small and expresses concern about patient-selection practices. MedPAC recommends using the same set of national provider identifiers to compute both performance-year and baseline assignments for MSSP ACOs to properly match the clinicians included in the ACOs’ baseline and performance years and accurately assess performance.

Other Topics

MedPAC discusses various MA issues, such as replacing the MA quality bonus program and risk adjustment for MA enrollees. MedPAC also recommends a series of changes to the Part D drug program to limit enrollees’ out-of-pocket spending; realign plan and manufacturer incentives to help restore the role of risk-based, capitated payments; and eliminate features of the current program that distort market incentives.