MedPAC’s June Report Recommends Site-Neutral Cuts

June 21, 2023

In its June report to Congress, the Medicare Payment Advisory Commission (MedPAC) recommended Medicare payment policy changes, including aligning Medicare payments across ambulatory settings, changing the wage index methodology, and revising payments for Part B drugs. MedPAC also presented evidence of disparities in outcomes for Medicare beneficiaries with different social risks and published mandated reports on behavioral health care services, telehealth services, and a unified post-acute care (PAC) prospective payment system (PPS).

MedPAC recommended that the Centers for Medicare & Medicaid Services align payment rates across hospital outpatient departments (HOPDs), ambulatory surgical centers, and physician office settings for select services determined to be safe and appropriate to provide to Medicare beneficiaries in all settings. MedPAC identified potential services that could be appropriate for site-neutral payments by removing services that could only be reasonably provided in the HOPD, allowing the remaining services to determine which ambulatory setting had the largest volume for the service, and aligning Medicare payments with what is paid under that setting. MedPAC estimated that the recommended realignment would have reduced payments to providers by $7.5 billion in 2021 for the selected services. Under the MedPAC proposal, these changes would be implemented in a budget-neutral manner such that the reductions would be offset by increased payment rates for non-aligned services. MedPAC noted, however, that hospitals treating a disproportionate share of aligned services would be negatively impacted and recommended targeted support for certain hospital types that could be adversely affected by the policy.

One recent legislative proposal closely mirrored MedPAC’s recommendation but would implement the policy in a non-budget-neutral manner, resulting in massive payment reductions to hospitals. While most site-neutral policies that were implemented or proposed in recent years have targeted off-campus HOPDs, this proposal would cut payments for both on-campus and off-campus services. GNYHA strongly opposes site-neutral policies that reduce the rates for hospital outpatient services and is working to model the impacts of the MedPAC recommendation and other recent site-neutral proposals.

MedPAC has expressed concern that the current Medicare wage index is inaccurate and inequitable due to the use of limited data sources, overly broad labor market areas, and the large number of exemptions to the system. MedPAC recommended 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 provider types. 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, 3) smooth wage index differences across adjacent local areas, and 4) include no exceptions. MedPAC acknowledged that under its proposal, funds would be redistributed from high wage index hospitals and 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 through the wage index. GNYHA is modeling MedPAC’s recommendation to determine its impact on GNYHA members.

MedPAC recommended a package of policy options to address the price of Medicare Part B drugs. Specifically, it recommended that Congress 1) authorize the HHS Secretary to cap the Medicare payment rate for 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 eliminate add-on payments for Part B drugs paid based on wholesale acquisition cost.

The report included the results of MedPAC’s analysis on disparities in outcomes for Medicare beneficiaries with varied social risks. MedPAC found that low-income beneficiaries were more likely to have worse outcomes across the studied quality measures and found differential outcomes when analyzing these metrics by race/ethnicity. Based on these findings, MedPAC supported peer-grouping methodologies in value-based payment programs, financial support for safety net hospitals, public reporting of stratified quality data, and a focus on disparity reduction in value-based payment programs.

MedPAC also forwarded to Congress several mandated reports. First, a report on behavioral health noted the deleterious effect of labor shortages on the supply of inpatient psychiatric beds and highlighted concern that current supply could be inadequate to ensure access for persistently mentally ill beneficiaries. MedPAC also presented its report on a unified PAC PPS, noting its preferred design features are the PAC stay as a unit of service, standard payments across settings except home health stays, a common risk adjustment based on patient characteristics across settings, a targeted rural adjuster, high-cost and short-stay outlier policies, and an adjustment for outliers. MedPAC’s preferred design would not adjust broadly for rural location, beneficiaries with low incomes, source of admission, or teaching status. Finally, MedPAC’s analysis of telehealth services found that telehealth’s expansion during the COVID-19 public health emergency was associated with improved care access for some beneficiaries, little change in quality, and slightly increased costs. However, MedPAC noted that these findings should not be interpreted causally and that more evidence is needed before making permanent policy changes.