Five Medicare payment recommendations from MedPAC

The Medicare Payment Advisory Commission's (MedPAC) annual report offers five payment recommendations including reforms for two post-acute care providers, a 10 percent cut to drug payments for safety-net hospitals and changes to Medicare Advantage (MA) diagnosis coding.

The recommendations include:

  1. Reform payments for skilled nursing facilities (SNF) and home health agencies. In addition to recommending against 2017 payment updates for four providers (ambulatory surgical centers, long-term care hospitals, inpatient rehabilitation facilities and hospice), MedPAC endorses freezing payment rates for SNFs and home health agencies for two years while the Centers for Medicare & Medicaid Services (CMS) revises the payment system. MedPAC points to overpayments for SNF therapy services as a primary driver behind this change. Similarly high margins within the home health industry prompted MedPAC to recommend eliminating the use of therapy as a payment factor for home health reimbursement.
  2. Cut Part B drug payments for safety-net hospitals by 10 percent. MedPAC notes that safety-net hospitals with high shares of Medicaid patients and low-income Medicare patients receive substantial discounts from drug manufacturers through the 340B Drug Pricing Program, but Medicare pays approximately 106 percent of each drug's average sales price. For this reason, MedPAC recommends slashing reimbursement for 340B drugs by 10 percent. The proposal has previously drawn sharp criticism from the hospital community.
  3. Review coding practices for inpatient rehab. An analysis of billing practices by inpatient rehab facilities (IRF) found that patients often appear more functionally disabled when they enter an IRF than they did in their prior stay at an acute care hospital. Based on this assessment, MedPAC believes faulty "coding practices" may contribute to inaccurate reimbursement, and recommends the Secretary of Health and Human Services conduct focused medical reviews to determine whether IRF coding accurately reflects patient needs.
  4. Review MA risk scores. As popularity surges within MA plans, MedPAC recommends making plans more equitable by eliminating the cap on benchmarks in certain counties that limit quality bonuses, as well as an adjustment that doubles quality bonuses in other counties. MedPAC also raises concerns about diagnostic coding used to establish MA risk scores, indicating that MA beneficiaries often have higher risk scores than comparable fee-for-service beneficiaries. MedPAC says CMS should change the way it collects diagnoses codes to target plans with "intensive coding practices" and ensure more accurate risk scores. 
  5. Keep an eye on Part D growth. Although MedPAC offered few concrete recommendations for Part D plans, the commission did highlight the significant payment increases within the program and the distinct shift toward generic drugs. MedPAC added that a growing percentage of beneficiaries have reached the "catastrophic phase" of Part D plans and high-priced specialty drugs will likely place added pressure on the plan in the coming years.

Additionally, MedPAC voiced concerns about required medication therapy management (MTM) programs designed to improve quality, noting that Medicare has plans to test enhanced MTM programs beginning in 2017.

In 2014, MedPAC recommended improving to risk adjustment scores in MA and accountable care organization plans to better synchronize Medicare policy. Earlier this year, the commission recommended a modest 1.65 percent Medicare payment increase for hospitals, but pushed for no increases for post-acute care providers.

To learn more:
- read the MedPAC report

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