MedPAC has suggested accelerating the creation of a single post-acute payment system, which could cut payments by up to $10 billion in the first two years.


June 19—Suggested changes to the Medicare’s physician payment system were among recent payment and policy recommendations from Congress’s leading Medicare advisers that raised significant financial concerns for hospitals.

The Medicare Payment Advisory Commission (MedPAC) recently issued its annual report to Congress, which included a range of policy ideas and recommendations. Among those were suggested changes to the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), which features differing payment methodologies for physicians depending on whether they are in advanced alternative payment models (APMs) or the Merit-based Incentive Payment System (MIPS).

The MedPAC report described an alternative model for MIPS that would withhold a set amount of physician payment unless specified population-based outcome measures were achieved. Under current law, physicians in MIPS receive bonuses or payment cuts depending on their performance on quality measures. The new approach would replace “burdensome” clinical reporting with calculations “from claims or surveys.” Clinicians could recoup the withheld payments if they join a “virtual group” or an APM.

Other possible changes would make the 5 percent annual bonus payment for joining APMs proportional to physicians’ involvement with an APM instead of based on their total Medicare payments.

Any suggestion of MACRA changes at this point left hospital advocates such as Ivy Baer, JD, senior director and regulatory counsel for the Association of American Medical Colleges, “very concerned.”

“2017 is the first performance year for these programs,” Baer said in a written statement to HFMA News. “It is important that they be given time to be adequately implemented and understood before consideration is given to making changes of this magnitude.”

The American Hospital Association (AHA) had similarly warned against early MACRA changes in a letter to MedPAC. 

Hospitals have plenty of incentive to focus on the physician payment overhaul, given that MACRA’s financial impact on those organizations’ Medicare revenue was projected to range from a $32 billion increase to a $250 billion decrease in 2015–30, according to an April study in Health Affairs. The losses would result from physician responses that reduce the use of hospital care, such as implementing steps to avoid admissions and readmissions, according to comments by an author of the study.

Not all hospital advocates have opposed changing MACRA at this early stage. For instance, several hospital groups signed on to a May 31 letter urging regulatory changes to the law to allow earlier participation by Medicare Advantage (MA) plans.

The Centers for Medicare & Medicaid Services (CMS) has yet to issue the proposed MACRA rule for 2018. And some experts have said they expect a second year of reduced physician quality-reporting requirements next year. Rep. Michael Burgess, MD (R-Texas), chairman of the Health Subcommittee of the Energy and Commerce Committee, said in a recent interview that he planned to hold a hearing on such an extension of MACRA reporting flexibility.

PAC Payments

Other MedPAC suggestions that have troubled hospitals include the recommendation to create a unified prospective payment system (PPS) for post-acute care (PAC) services. The commission members worried that having separate payment systems for skilled nursing facilities, home health agencies, inpatient rehabilitation facilities, and long-term care hospitals causes Medicare payments for similar patients to differ substantially. MedPAC recommended that CMS implement a new PAC PPS in 2021 using a three-year transition and that overall payments be lowered by 5 percent.

“Greater equity in payments means providers would have less incentive to select certain patients over others,” MedPAC stated.

Thomas Nickels, executive vice president for AHA, which includes more than 3,000 PAC providers, had urged MedPAC to collect more information about the feasibility and advisability of pushing up a statutory timeline for creating and operationalizing such a PAC payment system.

“We are concerned that such an aggressive move may reduce the reliability and accuracy of the final model, which could result in significant mis-payment and, as a result, harm access to care, particularly for high-acuity patients who use specialized post-acute services that are not provided in all of the PAC settings,” Nickels wrote in a March letter.

MedPAC staff estimated that the new PAC payment system would cut Medicare payments by $5 billion to $10 billion in its first two years. Fee-for-service (FFS) Medicare spent $60 billion on PAC providers in 2015.

Part B Changes

The AAMC was generally supportive of MedPAC’s efforts to address drug prices as a driver of costs for Medicare and other payers. 

“Better reporting of average sales price and authority to enforce penalties against manufacturers could be important tools,” Baer said. “Caution should be taken regarding any changes to the payment system that could have an impact on patients’ access to drugs and the ability of providers to provide the drugs that are needed.”

MedPAC recommended reforming the buy-and-bill system by including an inflation rebate aimed at shielding Medicare and beneficiaries from rapid price increases. Eventually, MedPAC wants Medicare to develop a program, referred to as the Part B Drug Value Program (DVP), through which providers could voluntarily enroll and use private vendors to negotiate drug prices with manufacturers.

“The intent of the DVP would be to obtain lower prices for Part B drugs by permitting private vendors to use tools such as a formulary to negotiate prices with manufacturers and by improving incentives for provider efficiency through shared savings opportunities,” a MedPAC fact sheet stated.

Other Areas

Other aspects of the MedPAC report that could affect hospitals included discussion of possible policies focused on stand-alone emergency departments (EDs).

To control costs, policy makers could consider reducing payment rates for off-campus EDs; encouraging the development of stand-alone EDs in areas with inadequate access to ED services; and eliminating policy exceptions to site-neutral payment for ambulatory (i.e., hospital outpatient and physician) services, according to MedPAC.

MedPAC made no new recommendations related to provider consolidation but reiterated earlier options, including responding to hospital mergers and acquisitions by “restraining” Medicare prices rather than following increases in commercial prices. The commission has suggested discouraging hospital purchases of physician practices by using more site-neutral payments, meaning identical payments for the same service delivered by different providers.

In response to hospital and insurer consolidation, MedPAC has discussed “synchronizing” payments across MA plans, Medicare accountable care organizations, and FFS Medicare.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Tuesday, June 20, 2017