On March 1, 2010, the Medicare Payment Advisory Commission (MedPAC or the
Commission) released its
to the Congress: Medicare Payment Policy (the Final Report). The purpose
of the Final Report is to recommend annual Medicare payment updates for the
following nine Medicare fee-for-service (FFS) payment systems: hospitals,
physicians, ambulatory surgery centers, outpatient dialysis services, hospices,
skilled nursing facilities, home health services, inpatient rehabilitation
facility services and long-term acute care hospital services.
Payment updates change the base rate paid by Medicare for each unit of
service provided by a FFS provider—for example, a hospital admission, a
physician visit or procedure, or an episode of care. Recommended payment updates
are based on an assessment of payment adequacy taking into account
beneficiaries’ access to care, supply of providers, quality of care, providers’
access to capital and Medicare margins.
It is important to note that although lawmakers are not required to take the
Commission’s advice, MedPAC’s recommendations often influence congressional
debate. For this reason the Final Report provides important guidance to
lawmakers grappling with stalled efforts to reform the nation’s healthcare
system and to enact legislation to fix a 21 percent Medicare physician payment
cut that became effective March 1, 2010. This Client Alert highlights some of
- Recommended payment rate increases for the inpatient and outpatient
prospective payment systems for fiscal year 2011 by the projected rate
of increase in the hospital market basket index (presently estimated to
be 2.4 percent for fiscal year 2011), together with implementation of a
quality incentive payment program.
- Recommended reducing payment rates in the inpatient prospective
payment system by the same percentage (not to exceed 2 percent) during
fiscal years 2011, 2012 and 2013 to recapture overpayments to hospitals
resulting from the conversion to Medicare Severity-Diagnosis Related
- Recommended updating payment for physician services in 2011 by 1
- Again recommended establishing a budget-neutral payment adjustment
for primary care services billed under the Medicare physician fee
schedule and furnished by primary-care-focused practitioners (previously
recommended in June 2008 and March 2009).
- Ambulatory Surgery Centers (ASC):
- Recommended increasing payments for ASC services in calendar year
2011 by 0.6 percent.
- Recommended requiring ASCs to submit annual cost and quality data.
- Outpatient Dialysis Services:
- Recommended updating the composite rate by the projected rate of
increase in the ESRD market basket index, less the adjustment for
productivity growth for calendar year 2011 (an estimated net update of
approximately 0.7 percent).
- Expressed support for Congress’ passage of the Medicare Improvements
for Patients and Providers Act of 2008, and implementing rules proposed
by the Centers for Medicare & Medicaid Services in September 2009, which
together would implement (i) a new dialysis prospective payment system
to broaden the dialysis payment bundle beginning in calendar year 2011,
and (ii) the development of a quality incentive program beginning in
- Recommended updating payment rates for hospice services for fiscal
year 2011 by the projected rate of increase in the hospital market
basket index (presently estimated to be 2.4 percent), less the
Commission’s adjustment for productivity growth (an estimated net update
of approximately 1.1 percent).
- Reiterated recommendations from March 2009 advising implementation
of the following payment system changes by fiscal year 2013: (i) making
relatively higher payments per day at the beginning of an episode of
care, and relatively lower payments per day as the length of an episode
increases; (ii) including a relatively higher payment for costs
associated with patient death at the end of the episode; and (iii)
requiring that a physician or advanced practice nurse visit a patient to
determine continued eligibility prior to the 180th-day recertification
and each subsequent recertification and attest that such visits took
- Recommended investigating the prevalence of improper financial
relationships between hospices and long-term care facilities such as
SNFs, IRFs and LTACHs that may represent a conflict of interest and
influence hospice admissions.
- Skilled Nursing Facilities (SNF):
- The Commission found that Medicare margins were over 16 percent in
2008 and recommended eliminating the update to payment rates for SNF
services for fiscal year 2011.
- Recommended revising the SNF prospective payment system by adding a
non-therapy ancillary component based on patient needs and replacing the
therapy component with one based on predicted patient care needs, and
adopting an outlier policy.
- Recommended establishing a budget-neutral quality incentive payment
policy for SNFs based on risk-adjusted rates of potentially-avoidable
- Recommended requiring SNFs to conduct patient assessments upon
admission and discharge.
- Home Health Services:
- Recommended eliminating the market basket update for 2011 and
rebasing rates for home healthcare services to reflect the average cost
of providing care.
- Recommended identifying categories of patients who are likely to
receive the greatest clinical benefit from home health and develop
quality outcomes measures for each category of patient.
- Recommended reviewing home health agencies that exhibit unusual
patterns of payment claims, and implementing safeguards, such as a
moratorium on new providers, preauthorization, or suspension of prompt
payment requirements, in potentially high risk areas.
- Inpatient Rehabilitation Facilities (IRF). Recommended no payment
rate update for IRF services for fiscal year 2011.
- Long-Term Acute Care Hospitals (LTACH). Recommended no payment
rate update for LTACH services for rate year 2011.
The Commission emphasized throughout the Final Report that payment rate
updates alone are incapable of solving the underlying problem that providers are
paid more when they deliver more services without regard to the quality or value
of those additional services. The Commission therefore encouraged Congress to
consider its payment update recommendations in the larger context of its growing
number of recommendations to move beyond FFS to more comprehensive payment
systems (e.g., medical homes, readmissions penalties and pilot testing of
bundled payment models) that would cross silos of care and pay for higher
Please contact one of the authors or a member of McGuireWoods’
or Long Term Care Practice if you would like more information about MedPAC’s
recommendations or how pending healthcare legislation may impact you.