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With health care spending growth still increasing, the Medicare Payment Advisory Commission (MedPAC or the Commission) continues to pursue its mission to advise US Congress on the Medicare program and its costs, which ultimately are borne by all taxpayers.

In its March report, the Commission made its recommendations for annual rate adjustments for nine provider sectors. These recommendations are driven by its assessment of the following components in each of the sectors:

  • Access to care
  • Access to capital
  • Quality of care
  • Medicare payments and providers’ costs

We have summarized highlights of these observations and payment update recommendations here and here

In its latest report, MedPAC recommends that hospitals, dialysis facilities, and physicians and other health professionals receive the payment increases for 2018 already specified in current law, while ambulatory surgical centers, long-term care hospitals and hospice providers should receive no payment increase in 2018. Home health and inpatient rehabilitation facilities would feel the greatest impact, as the Commission recommends reducing their payments by 5 percent.

MedPAC also continues to recommend revisions of the payment system to correlate payments with costs of patient treatment (i.e. payment based on patient characteristics versus the amount of service provide) with the intent of reducing provider incentives to treat some patients over others. 

Equalization of Payment Across Settings

“A core principle guiding the Commission is that Medicare should pay the same amount for the same service, even when it is provided in different settings.” (March 2017 Report to the Congress: Medicare Payment Policy, Chapter 2, p.58)

The March report reiterates past recommendations to eliminate payment differentials based on site of service:

  • Reduce payment rates for evaluation and management (E&M) office visits provided in hospital outpatient departments to equalize them with these visits provided in a physician’s office.
  • Reduce or eliminate differences in payment rates between outpatient departments and physician officers for selected ambulatory payment classifications.

The current system sets up inappropriate incentives to choose a site of care based on payment considerations, the report notes. For the same service provided by the same physician, a beneficiary’s coinsurance can differ by 80 percent or more depending on whether the service was provided in the physician’s office or in a hospital outpatient clinic.

As hospitals have been acquiring physician practices, more E&M visits are being billed as outpatient department visits, which are billed at higher rates. The Commission estimates that in 2015 Medicare spent $1.6 billion more and beneficiaries spent $400 million more because of this trend.

MedPAC acknowledges the challenges of harmonizing payments across sectors, and places much of the blame on inherent limitations of the fee-for-service payment system. This systemic weakness “highlights the importance of moving beyond FFS to more global and patient-centric payment systems.”

MedPAC’s focus on balancing payment adequacy, beneficiary access and long term sustainability may create fundamental shifts in reimbursement. In addition to assessing financial impacts, providers will need to assess various strategic options including affiliation, transfer of ownership and reorganization or restructuring of current business models to meet patient needs.

 

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THIS POST WAS WRITTEN BY Richard Romero

Richard is a healthcare director at HORNE LLP. As a member of the healthcare’s senior leadership team, he is responsible for the oversight of healthcare valuation services in the Nashville office. He serves clients through consulting and valuation of business enterprises and financial arrangements, litigation support and regulatory compliance.

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