MedPAC Releases 2010 Final Report Recommending Payment Updates for Fee-for-Service Providers

March 2, 2010

On March 1, 2010, the Medicare Payment Advisory Commission (MedPAC or the Commission) released its 2010 Report 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 MedPAC’s recommendations:

  • Hospitals:
    • 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 Groups (MS-DRGs).
  • Physicians:
    • Recommended updating payment for physician services in 2011 by 1 percent.
    • 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 2012.
  • Hospices:
    • 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 place.
    • 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 rehospitalizations.
    • 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 quality.

Please contact one of the authors or a member of McGuireWoods’ Healthcare Department or Long Term Care Practice if you would like more information about MedPAC’s recommendations or how pending healthcare legislation may impact you.

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