MedPAC Issues its 2013 Payment Recommendations to Congress

The Medicare Payment Advisory Commission (MedPAC) has issued its 2013 Medicare payment policy update recommendations to Congress for Medicare Advantage (MA) plans, prescription drug plans (PDPs), and the 10 health care provider sectors contained in fee-for-service (FFS) Medicare.

 Fee-for-Service Recommendations

MedPAC bases its Medicare FFS update recommendations on an evaluation of payment adequacy, beneficiary access to care, quality of care, providers’ access to capital, and provider costs and Medicare payments. Here is a brief description of its recommended updates for each sector:

Physicians and other health professionals. As first recommended by MedPAC in October 2011, Congress should (1) repeal the sustainable growth rate (SGR) system and replace it with a 10-year path of statutory fee-schedule updates (this 10-year path would be implemented by freeze in current payment levels for primary care and, for all other services, annual payment reductions of 5.9 percent for three years, followed by a freeze);  (2) direct the Secretary to regularly collect data (from a cohort of efficient practices), including service volume and work time, to establish more accurate work and practice expense values; (3) direct the Secretary to identify overpriced fee-schedule services and reduce their relative value units (RVUs) accordingly; (4) beginning in 2015, specify that the RVU reductions must achieve an annual numeric goal, for each of five consecutive years, of at least 1.0 percent of fee-schedule spending; and (5) direct the Secretary to increase the shared savings opportunity for physicians and health professionals who join or lead two-sided risk accountable care organizations (ACOs).

Inpatient and outpatient hospitals. Congress should (1) increase payment rates for the inpatient and outpatient prospective payment systems in 2013 by 1.0 percent; (2) direct the Secretary of HHS to reduce payment rates for evaluation and management office visits provided in hospital outpatient departments so that total payment rates for these visits are the same as for those provided in a physician office; and (3) direct the Secretary to examine, by January 2015, whether access for low-income patients would be impaired by setting outpatient evaluation and management payment rates equal to those paid in physician offices.

Skilled nursing facilities. Congress should (1) eliminate the market basket update for 2013; (2) as first suggested in July 2008, direct the Secretary to revise the skilled nursing facility (SNF) payment system to redistribute payments away from intensive therapy care that is unrelated to patient care needs and toward medically complex care; (3) direct the Secretary to begin a rebasing of payments in 2014 with an initial reduction of 4.0 percent and subsequent reductions over an appropriate transition until Medicare’s payments are better aligned with providers’ costs; and (4) direct the Secretary to reduce payments to SNFs with relatively high risk-adjusted rates of re-hospitalization during Medicare-covered stays and be expanded to include a time period after discharge from the facility.

Home health agencies. As first recommended in March 2011, the Secretary, with the Office of the Inspector General (OIG), should conduct medical review activities in counties that have aberrant home health (HH) utilization. In addition, the Secretary should (1) implement the new authorities to suspend payment and the enrollment of new providers if they indicate significant fraud; (2) revise the HH case-mix system to rely on patient characteristics to set payment for therapy and nontherapy services and no longer use the number of therapy visits as a payment factor; and (3) be direct by Congress, to begin a two-year rebasing of HH rates in 2013, eliminate the market basket update for 2012, and establish a per episode copay for HH episodes that are not preceded by hospitalization or post-acute care use.

Hospice.  As first recommended in March 2009, Congress should update the hospice payment rates for fiscal year 2013 by 0.5 percent and direct the Secretary to change the Medicare payment system for hospice to: (1) have relatively higher payments per day at the beginning of the episode and relatively lower payments per day as the length of the episode increases; (2) include a relatively higher payment for the costs associated with patient death at the end of the episode; (3) implement the payment system changes in 2013, with a brief transitional period; and (4) require that all stays in excess of 180 days be medically reviewed for hospices for which stays exceeding 180 days make up 40 percent or more of their total cases. Effective 2013, Congress should also direct the Secretary to require that a hospice physician or advanced practice nurse visit the patient to determine continued eligibility prior to the 180th-day recertification and each subsequent recertification and attest that such visits took place; and require that certifications and recertifications include a brief narrative describing the clinical basis for the patient’s prognosis.

Inpatient rehabilitation facilities. The Congress should eliminate the update to the Medicare payment rates for inpatient rehabilitation facilities in fiscal year 2013.

Long-term care hospitals. The Secretary should eliminate the update to the payment rates for long-term care hospitals for fiscal year 2013.

Ambulatory surgical centers. Congress should update the payment rates for ambulatory surgical centers by 0.5 percent and direct the Secretary to implement a value-based purchasing program by no later than 2016.

Outpatient dialysis. Congress should update the outpatient dialysis payment rate by 1.0 percent for calendar year 2013.

 Medicare Advantage Program

For 2011, MedPAC reports that MA enrollment increased to 25 percent of Medicare enrollees (12.1 million). Health maintenance organization (HMO) enrollment grew by 6.0 percent. Local preferred payment organization (PPO)  enrollment increased by around 65 percent, and enrollment in regional PPOs grew by about 34 percent.

Practically all Medicare beneficiaries in 2011 had access to an MA plan (99.7 percent), and 99 percent had access to a network-based HMO or PPO. Eighty-eight percent had access to an MA plan that included Part D drug coverage and had no premium.

For 2012, MedPAC reports that MA plan bids average 98 percent of fee-for-service (FFS) spending. However, despite lower 2012 MA plan bids and county-level benchmarks, MedPAC reports that Medicare will spend 7.0 percent more for MA beneficiaries than for beneficiaries enrolled in traditional FFS Medicare. MedPAC believes this is due, in part, to the additional payments to MA plans under CMS’ quality-bonus demonstration.

 Part D Program and LIS Beneficiaries

MedPAC reports that in 2011, about 60 percent of Medicare beneficiaries (29 million) were enrolled in Part D plans with about 36 percent of Part D enrollees (11 million) receiving the low-income subsidy (LIS).

The structure of drug benefits for PDPs and MA–PDs held fairly steady in 2011, according to MedPAC. The share of plans with no deductible remained at about 43 percent for PDPs and 91 percent for MA–PDs. However, PDPs providing gap coverage in 2012 fell to 26 percent, compared to 33 percent in 2011.  The share of MA–PDs with gap coverage remains at 50 percent.

For 2012, MedPAC reports that beneficiaries have between 25 and 36 PDP options to choose from, with many MA plans also offering MA–PDs.

Low-income subsidy beneficiaries.  MedPAC reports that compared to other Part D enrollees, high-cost beneficiaries (those who met the catastrophic limit) filled more prescriptions, filled more expensive prescriptions, and used more brand-name drugs. Eighty-three percent of high-cost enrollees received the low-income subsidy (LIS).

Because Part D plans are limited in their ability to modify drug copayments for LIS enrollees, brand-name drug co-pays for LIS enrollees do not differ significantly from generic drug copays. As a result, MedPAC recommends that Congress (1) modify the Part D LIS copayments for beneficiaries with incomes at or below 135 percent of poverty to encourage generic drug use in selected therapeutic classes; (2) direct the Secretary to develop a copay structure, giving special consideration to eliminating the cost sharing for generic drugs; and (3) direct the Secretary to determine appropriate therapeutic classifications for the purposes of implementing this policy.