On June 15, 2021, the Medicare Payment Advisory Commission (MedPAC) released one of their two annual Reports to Congress.[1]^,[2] The report includes recommendations to revise Medicare Advantage (MA) benchmark policy, streamline the portfolio of alternative payment models (APMs), replace the existing skilled nursing facility value-based purchasing program, revise indirect medical education (IME) payments, and improve policies for separately payable outpatient drugs. In addition, the report includes chapters on beneficiary access in rural areas, the relationship between clinician and other Medicare services, the impact of recent changes to the clinical laboratory fee schedule payment rates, and private equity.

Recommendation on Rebalancing MA Benchmark Policy

Current MA benchmarking policy results in high plan participation, enrollment, and benefits but no savings to Medicare. In this regard, the MA program is inconsistent with other innovation models and waivers that require budget or cost neutrality. MedPAC estimates that Medicare spends four percent more per capita for beneficiaries enrolled in MA plans than traditional fee-for-service (FFS) Medicare.

Plans that bid below the benchmark receive payment from Medicare in the form of a “rebate.” The law defines the rebate as a fixed percentage of the difference between the plan’s actual bid (not standardized) and its risk-adjusted benchmark. The fixed percentages are 50, 65, and 70 percent, depending on a plan’s star rating.[3] Once the rebate dollars are determined, the plan must then return the rebate to its enrollees in the form of supplemental benefits or lower premiums.[4] MedPAC stated that current plan bids are at levels well below FFS spending, resulting in the following recommendation:

Recommendation(s)

“The Congress should replace the current Medicare Advantage (MA) benchmark policy with a new MA benchmark policy that applies:

• a relatively equal blend of per capita local area fee-for-service (FFS) spending with price-standardized per capita national FFS spending;
• a rebate of at least 75 percent;
• a discount rate of at least 2 percent; and
• the Commission’s prior MA benchmark recommendations—using geographic markets as payment areas, using the FFS population with both Part A and Part B in benchmarks, and eliminating the current pre–Affordable Care Act cap on benchmarks.”

Recommendation to Streamline Alternative Payment Models

Most of CMS’s APMs are run through its Center for Medicare and Medicaid Innovation (CMMI). These models are temporary demonstrations that can be expanded if they reduce spending and improve quality of care. In CMMI’s first ten years, almost all of its accountable care organizations and episode-based payment models generated small gross savings before performance bonuses. But, in some cases, net Medicare payments in these models exceeded what would have been paid otherwise.

Additionally, many providers participate in multiple APMs, and Medicare beneficiaries are attributed to more than one model at a time, causing overlap with unintended consequences. This overlap also makes it difficult to assess the models adequately. Therefore, the Commission recommends the following:

Recommendation(s)

“The Secretary should implement a more harmonized portfolio of fewer alternative payment models that are designed to work together to support the strategic objectives of reducing spending & improving quality.”

Analysis of Private Equity and Medicare

The Commission examines the role of private equity (PE) in the Medicare program as requested by the House Committee on Ways and Means. MedPAC examined four issues related to private equity: tracking investments; business models, impact on costs and quality, and investments in companies participating in MA programs. MedPAC included the following findings in this chapter of the report:

• “Understanding which individuals or entities own a Medicare provider and their track record of operations could help to improve oversight and safeguard patient care.”
• “PE firms own about 4 percent of hospitals and 11 percent of nursing homes.” There is no comparable figure for physician practices.
• “PE-owned facilities tended to have lower costs and lower patient satisfaction than other for-profit and nonprofit hospitals.” Research on the reasons for these differences and differences between PE and other types of nursing homes and physician practices was limited.
• PE funds own about two percent of the companies offering MA plans as of January 2021.

Recommendation to Replace SNF VBP Program

In this chapter, the Commission reviews the progress of the skilled nursing facility value-based purchasing (SNF VBP) program, in response to a mandate in the Protecting Access to Medicare Act of 2014. The current SNF VBP program uses only hospital readmissions as a performance measure, which determines whether the SNF is rewarded, penalized, or neither and the size of the payment adjustment. MedPAC believes the use of a single measure is a design flaw as it does not capture the many dimensions of health care quality. As a result, MedPAC makes the following recommendation:

Recommendation(s)

“The Congress should eliminate Medicare’s current skilled nursing facility (SNF) value-based purchasing program and establish a new SNF value incentive program (VIP) that:

• scores a small set of performance measures;
• incorporates strategies to ensure reliable measure results;
• establishes a system for distributing rewards that minimizes cliff effects;
• accounts for differences in patient social risk factors using a peer-grouping mechanism; and
• completely distributes a provider-funded pool of dollars.”

“The Secretary should finalize development of and begin to report patient experience measures for skilled nursing facilities.”

Analysis of Access to Care in Rural Areas

MedPAC examined data on rural beneficiaries’ access to care compared to their urban counterparts as a result of a House Committee on Ways and Means’ 2020 request for an updated analysis. The analysis was conducted using 2019 data from the Medicare Current Beneficiaries Survey (MCBS). The research is an interim report with the final report due in June 2022, including analyses stratified by dual-eligibility, medically underserved areas, and beneficiaries with chronic conditions. The data highlights include:

• rural and urban beneficiaries have similar access to care with some minor differences which increase as rurality increases;
• rural and urban beneficiaries have comparable utilization rates;
• there was substantial variation across geographic regions of the country rather than between rural and urban beneficiaries within given regions;
• hospital closures in rural areas have been caused by declines in inpatient admissions, while hospitals are still an important source of Emergency and outpatient care in these areas and have seen an increase in Emergency Department (ED) volume.

Recommendation on Revision to IME Payments

In this chapter, the Commission discusses concerns they have with the current IME payment policy: it is “inpatient-centric” and does not reflect the increasing shift towards hospital outpatient care and payments do not accurately reflect the effect of teaching on patient care costs across settings. Revising IME policy to include both inpatient and outpatient payments would allow for IME payments to be distributed more equitably. The shift would better reflect teaching hospitals’ additional costs but would not reduce Medicare’s aggregate support to teaching hospitals. This adjustment would initially have no effect on spending but would increase Medicare spending over time.

Recommendation(s)

“The Congress should require CMS to transition to empirically justified indirect medical education adjustments to both inpatient and outpatient Medicare payments.”

Recommendation on Vaccine Coverage and Payment

Currently, Medicare covers vaccines for the seasonal flu, Pneumococcal disease, Hepatitis B, and COVID-19 under Part B with no cost-sharing and covers all other commercially available preventive vaccines such as shingles or Hepatitis A under Part D where cost-sharing varies by plan. The Commission recommended that all preventive vaccines be covered under Part B in 2007, as more beneficiaries are covered by Part B and cost sharing in Part D plans may deter some beneficiaries from getting vaccines. Therefore, the Commission makes the following recommendation to move all vaccines to coverage under Part B but has concerns about Medicare’s payment method for Part B-covered preventive medicines.

Recommendation(s)

“Congress should cover all appropriate preventive vaccines and their administration under Part B instead of Part D without beneficiary cost sharing and modify Medicare’s payment rate for Part B-covered preventive vaccines to be 103 percent of wholesale acquisition cost (WAC), and require vaccine manufacturers to report average sales price data to CMS for analysis.”

Recommendations on Hospital Outpatient Payment for Separately Payable Drugs

The Hospital Outpatient Prospective Payment System (OPPS) includes various payment bundles, but some drugs covered under OPPS are separately payable. Separately payable drugs include those with pass-through status and non-pass-through drugs that are not policy packaged and exceed a certain per-day threshold cost, currently at $130/day for 2021. MedPAC staff reviewed these policies and applied two features from the Commission’s June 2020 Report to Congress to help determine an effective system for identifying separately payable drugs to which the Commission made the following recommendations:

Recommendation(s)

“The Congress should direct the Secretary to modify the pass-through drug policy in the hospital outpatient prospective payment system so that it:

• includes only drugs and biologics that function as supplies to a service, and
• applies only to drugs and biologics that are clinically superior to their packaged analogs.”

“The Secretary should specify that the separately payable non-pass-through policy in the hospital outpatient prospective payment system applies only to drugs and biologics that are the reason for a visit and meet a defined cost threshold.”

MedPAC believes that these changes would have no direct effect on spending in the short term because of the OPPS budget neutrality requirement, but over the long term could produce savings by placing limits on the inflationary effects of the current policies. It could also allow providers to change choices within groups of clinically similar drugs. MedPAC does not anticipate any effect on beneficiary access, though there could be improved efficacy of the drugs used with outpatient services.

The Commission also includes a discussion on setting payment rates for biosimilars, stating the current policy of assigning a biosimilar and its reference biologic to different billing codes conflicts with the Commission’s principle that Medicare should pay similar rates for similar care. The Commission references their 2017 recommendation that “the Congress require the Secretary to use a common billing code to pay for a reference biologic and its biosimilars.”

Report on Changes to Clinical Lab Payment Rates

The Consolidated Appropriations Act of 2020 required MedPAC to examine the methodology CMS used to set private payer-based payment rates for clinical laboratory fee schedule (CLFS) services. Starting in 2018, CMS set these payment rates based on the rates private payers paid for laboratory tests, requiring laboratories to submit private-payer rate data to CMS. MedPAC found that these data were not representative, with independent laboratories being overrepresented and physician-office laboratories underrepresented. The Commission concludes that, “For most routine tests, policymakers should consider setting laboratory payment rates based on private-payer data from certain types of laboratories (e.g., independent laboratories) while excluding the data from others (e.g., hospital laboratories).”

Report on Relationship Between Clinician and Other Services

The Medicare Access and Children’s Health Insurance Program (CHIP) Reauthorization Act of 2015 mandated two reports on the relationship between services provided by physicians and clinicians and other Medicare services (Part A, Part B, and Part D) in order to compare use and expenditure of services. This chapter includes the second of these two reports, the first of which was submitted in June 2017. The Commission found that spending on clinician services grew at a slower rate than Part A and Part B spending and also the use of clinician services declined as a share of all Part A and Part B services from 2013 to 2018. Finally, it found that increasing clinician services only resulted in a slight reduction in the use of other Part A and Part B services.

[1] http://medpac.gov/docs/default-source/reports/jun21_medpac_report_to_congress_sec.pdf?sfvrsn=0

[2] MedPAC is statutorily required to submit two reports to the Congress by March 15 and June 15 of each year. The reports include policy recommendations and also provide the Congress and public with a better understanding of the Medicare program.

[3] https://www.cms.gov/files/document/2021starratingsfactsheet-10-08-2020.pdf

[4] http://www.medpac.gov/docs/default-source/payment-basics/medpac_payment_basics_20_ma_final_sec.pdf