On January 12 and 13, 2023, the Medicare Payment Advisory Commission (MedPAC) held a virtual public meeting. The meeting included sessions on the following:
- Assessing payment adequacy and updating payments for hospital inpatient and outpatient services and supporting Medicare safety-net hospitals;
- Assessing payment adequacy and updating payments for outpatient dialysis services, hospice services, skilled nursing facility services, home health agency services, and inpatient rehabilitation facility services;
- Medicare Advantage program status report;
- Medicare clinician and outpatient behavioral health services;
- Updates on telehealth use and beneficiary and clinician experiences;
- Medicare Part D status report; and
- Addressing high prices of Part B drugs.
The full agenda for the meeting and the presentations for the sessions are available here.
MedPAC Votes on Revised Recommendations for 2024 Medicare Hospital Inpatient and Outpatient Services Payment Update and Support for Safety-Net Hospitals
In preparation for MedPAC’s March 2023 Report to the Congress, the Commission discussed the adequacy of Medicare inpatient and outpatient payments to general acute care hospitals, and how they should be updated in 2024. After reviewing the payment adequacy indicators, the Commission voted on revised recommendations to update Medicare payment rates. A recommendation to use a Medicare safety-net index to distribute safety-net payments to hospitals was also discussed and voted upon.
Recommendation for Hospital Inpatient and Outpatient Services
To make recommendations for Medicare hospital inpatient and outpatient services, the Commission utilizes the following adequacy indicators: patient access to care, quality of care, access to capital, and Medicare payments and hospitals’ cost. While hospitals’ payment adequacy indicators were generally positive in 2021, some declined in 2022.
In response to this information, the Commission considered macroenvironmental factors, including input cost increases and COVID-19-related barriers, for hospitals struggling to maintain capacity while providing efficient care amidst unprecedented challenges. The Commission seeks to maintain Medicare payments at a level sufficient to ensure beneficiary access to care; maintain payments to account for hospitals’ cost of providing efficient, high-quality care; maintain fiscal pressure on hospitals to constrain costs; minimize differences in payment rates for similar services across sites of care; and avoid implementing a blanket payment increase to support a subset of hospitals with specific needs.
The Commission unanimously voted yes to the following recommendation:
For 2024, Congress should update the 2023 pay rate for hospitals by the amount determined by current law plus an additional 1%.
Recommendation for Supporting Medicare Safety-Net Hospitals
The MedPAC Commission also discussed its recommendation to make changes to safety-net payments for hospitals serving low-income Medicare beneficiaries. This recommendation, which applies to all general acute hospitals, acknowledges that current Medicare safety-net payments do not address the challenges facing hospitals with high shares of low-income Medicare patients. Specifically, the Commission cited issues caused by disproportionate share hospital payments (DSH), including the reduced profitability of Medicare, direct subsidy of Medicaid, and uncompensated care subsidy.
To address concerns surrounding DSH, the Commission voted in favor of the following recommendation:
For FY 2024, Congress should: 1) begin to redistribute existing DSH and uncompensated care payments via the Medicare Safety-Net Index (MSNI) in a transition which could occur slowly over several years; or be implemented with a stop-loss policy 2) provide an additional $2 billion of MSNI funding to occur within year one of the transition; and 3) allow hospitals with revenue reductions time to augment revenues from existing sources, improve cost efficiencies, or request additional state or local support.
The Commission suggested that in the future, data be gathered to provide solid evidence that DSH is not adequate for safety-net hospitals.
MedPAC Recommends Update to Physician And Other Health Professional Services Payment And Safety-Net Clinician Add-On Payment
Physician and Other Health Professional Services Recommendation
MedPAC assessed the adequacy of physician and other health professional services based on access to care, quality of care, and clinicians’ revenue and cost. While most payment indicators indicate that payment rates have been adequate, rising clinicians’ costs are concerning.
To address rising costs, the Commission unanimously voted yes on the following recommendation:
For calendar year 2024, the Congress should update the 2023 Medicare base payment rate for physician and other health professional services by 50 percent of the projected increase in the Medicare Economic Index.
The one-year cost of this policy is expected to be between $750 million to $2 billion and the five-year cost is expected to be between $5 billion to $10 billion. Beneficiaries’ access to care and providers’ willingness and ability to furnish care is expected to be maintained.
Safety-Net Clinician Add-on Payment Recommendation
To address the need for Medicare to support clinicians who treat low-income beneficiaries, commissioners discussed a recommendation to support safety-net clinicians. Commissioners continued to agree that supporting primary care clinicians is important, and noted areas to consider in future work, including a focus on small primary care practices, chronic disease management from primary care doctors, decreasing administrative burden, monitoring outcomes for low-income beneficiaries, and continuing a focus on alternative payment models. Chair Commissioner Michael Chernew noted that MedPAC is thinking about physician fee schedule reform and how the Commission will engage on the topic in future cycles.
The Commission unanimously voted yes on the following recommendation:
The Congress should enact a non-budget neutral add-on payment, not subject to beneficiary cost sharing, under the physician fee schedule for services provided to low-income Medicare beneficiaries. These add-on payments should equal a clinician’s allowed charges for these beneficiaries multiplied by:
- 15 percent for primary care clinicians; or
- 5 percent for non-primary care clinicians
MedPAC expects the one-year cost for this policy to be greater than $2 billion and the five-year cost to exceed $10 billion. Access to care for low-income beneficiaries and clinicians’ willingness to treat low-income beneficiaries is expected to be maintained or improved.
MedPAC Recommends Payment Updates for Outpatient Dialysis, Hospice, Skilled Nursing Facility, Home Health Agency, and Inpatient Rehabilitation Facility Services
In this session, the Commission voted on updating payment recommendations for outpatient dialysis services, hospice services, skilled nursing facility services, home health agency services, and inpatient rehabilitation facility services. The Commission assessed payment adequacy for each set of services based on the following indicators: beneficiaries’ access to care, quality of care, access to capital, and Medicare payments and costs. There was no discussion on the topics as the Commission reached consensus on the draft recommendations during the December 2022 public meeting.
Outpatient Dialysis Services Recommendation
Citing generally positive outpatient dialysis services payment adequacy indicators, the Commission unanimously voted yes on the following recommendation:
For calendar year 2024, the Congress should update the 2023 Medicare end-stage renal disease prospective payment system base rate by the amount determined under current law.
MedPAC expects there to be no spending impact relative to current law. Beneficiaries’ good access to outpatient dialysis care and continued provider willingness and ability to care for Medicare beneficiaries are expected to continue.
Hospice Services Recommendation
Citing generally positive hospice payment adequacy indicators, the Commission unanimously voted yes on the following recommendation:
For fiscal year 2024, the Congress should update the 2023 Medicare base payment rates for hospice by the amount specified in current law and wage adjust and reduce the hospice aggregate cap by 20 percent.
MedPAC expects this recommendation will decrease Medicare spending relative to current law by $250 million to $750 million over 1 year and between $5 billion to $10 billion over five years. Beneficiaries’ good access to hospice care and provider willingness and ability to care for Medicare beneficiaries are expected to continue.
Skilled Nursing Facility Services Recommendation
Citing generally positive skilled nursing facility services payment adequacy indicators and high margins, the Commission unanimously voted yes on the following recommendation:
For fiscal year 2024, the Congress should reduce the 2023 Medicare base payment rates for skilled nursing facilities by 3 percent.
MedPAC expects spending to decrease by over $2 billion in one year and over $10 billion over five years, relative to current law. Adverse impacts to beneficiaries are not expected. Providers should continue to be willing and able to treat beneficiaries.
Home Health Care Services Recommendation
Citing generally positive home health care services payment adequacy indicators, the Commission unanimously voted yes on the following recommendation:
For calendar year 2024, the Congress should reduce the 2023 Medicare base payment rate for home health agencies by 7 percent.
MedPAC expects this recommendation will decrease Medicare spending relative to current law by $750 million to $2 billion over one year and over $10 billion over five years. Access to care for beneficiaries should remain adequate. The recommendation should not affect the willingness of providers to serve beneficiaries but may increase cost pressure for some providers.
Inpatient Rehabilitation Facility Services Recommendation
Citing generally positive inpatient rehabilitation facility services payment adequacy indicators, the Commission unanimously voted yes on the following recommendation:
For fiscal year 2024, the Congress should reduce the 2023 Medicare base payment rate for inpatient rehabilitation facilities by 3 percent.
MedPAC expects that relative to current law, spending would decrease by $750 million to $ 2 billion in 2024, and by $5 billion to $10 billion over five years. No adverse effect on Medicare beneficiaries’ access to care is expected, though the recommendation may increase financial pressure on some providers.
Status Report: Medicare Advantage Program
In this session, MedPAC presented its annual update on the status of the Medicare Advantage (MA) program. The Commission discussed the most recent information relevant to MA enrollment, beneficiary access to plans, Medicare payments to plans, risk adjustment, and coding practices. In a robust discussion, commissioners weighed the challenges of making meaningful changes to Medicare Advantage payment policies, as previous MedPAC recommendations were largely disregarded by lawmakers. No recommendations were made in this session; however, the findings will be published as a chapter in the March 2023 report and will be used to inform the direction of future efforts.
MA Enrollment, Availability, Benchmarks, Bids and Payment
With an increasing number of MA plan choices available to nearly all Medicare beneficiaries, 49 percent of eligible beneficiaries were enrolled in MA plans in 2022. MA plan payment policies are based on plan bids, benchmarks (county-based and risk-adjusted) and quality scores. Benchmarks range from 115 percent of fee-for-service (FFS) in the lowest FFS spending counties to 95 percent of FFS in the highest spending counties. The benchmarks are increased for plans based on their overall quality scores. If the bid is lower than the benchmark, the plans get a percentage of the difference as a rebate, while Medicare keeps the remaining difference. Alternatively, if the bid exceeds the benchmark, the program pays the benchmark, and the enrollee pays a premium. In 2023, the level of monthly rebates is estimated to reach a historic high.
The Commission recommended that in future reports, more context be provided with respect to rebates, which can be attributed to higher benchmarks, higher coding intensity, reduced spending, and Star ratings.
Prospective and Retrospective Comparisons of MA to FFS Spending
Historically, MedPAC has performed prospective comparisons of MA to FFS spending by (1) calculating county-level MA and FFS spending, (2) aggregating county-level spending ratios using county enrollment projections from plans’ bids, and (3) adding the MedPAC estimate of MA and FFS diagnostic coding differences. This prospective comparison demonstrated that while MA bids are at a historic low relative to FFS, MA payments are estimated to exceed FFS in 2023. MedPAC also acknowledged that there are data limitations on prospective comparisons of spending.
In response to a Congressional request, MedPAC additionally conducted a retrospective comparison of actual MA plan payments and actual FFS spending from 2017-2019. This comparison, like the prospective method, accounted for differences in health status, geographic enrollment, services covered in each program, and diagnostic coding differences. Both prospective and retrospective comparisons demonstrated that the MA payments exceed FFS spending.
MA Program Coding Intensity
MedPAC’s report on coding intensity among MA plans demonstrates that in 2021, MA risk scores were about 10.8 percent higher than FFS due to coding differences. While there is little incentive for FFS to code diagnoses, MA plans have the financial incentive and infrastructure to code more diagnoses. After applying the CMS coding adjustment of 5.9 percent, MA risk scores were 4.9 percent higher than FFS due to coding differences, generating $17 billion in excess payments to MA plans in 2021. Between 2007 and 2023, MA coding intensity generated nearly $124 billion in excess payments. These high numbers reveal that while the MA program is very robust, policy reforms are urgent and necessary. The Commission has previously recommended addressing flaws in coding intensity, the quality system, benchmarks, and incomplete MA encounter data.
The Commission largely supported the steps that MedPAC is taking to address the issue of coding intensity and excess payments among MA plans. The Commission observed that the rationale behind its previous recommendations emphasized spending cuts with modest impacts on benefits; ideas which have been largely ignored by Congress. Commissioners suggested increased data stratification in future work, such as parsing data to differentiate MA plans from MA organizations, for profit vs. non-for-profit plans, and provider vs. non-provider-oriented plans. Additionally, the Commission pushed for previous recommendations to be resurrected to correct coding intensity and differentials, reassess quality ratings, examine benchmark inconsistencies, and improve encounter data.
MedPAC Evaluates Behavioral Health Services
During the January 2023 meeting, MedPAC staff reviewed Medicare coverage of behavioral health services and their usage among clinicians and outpatient centers. The Chairman of the Committee on Ways and Means previously requested the Commission evaluate utilization and availability of behavioral health services. MedPAC previously presented different components of the topic during the September 2022 meeting and plans to include an informational chapter in the June 2023 report to Congress.
MedPAC staff found that 4.9 million beneficiaries received Medicare Part B behavioral health services in 2021, with total spending on these services reaching $4.8 billion. Spending per beneficiary receiving these services increased by 11 percent in 2021 compared to 2020, to $981. They noted that these beneficiaries are more vulnerable and costly. Depression treatment accounted for 31 percent of Part B behavioral health spending, the largest share. Staff also found similar use of behavioral health services among fee-for-service (FFS) and Medicare Advantage (MA) beneficiaries. Tele-behavioral health use continues to grow despite overall telehealth’s peak in 2020.
The commissioners were generally supportive of the work presented and suggested several areas for follow-up. A few suggested contextualizing behavioral health providers using all insurance types, rather than just Medicare. One recommended incorporating Part D into the analysis to include drug treatment. Commissioners suggested evaluating access in different areas and satisfaction rates, and data comparing access to these services in MA and FFS. Some commissioners noted concerns, including potentially having skewed and confounded data. Others discussed the use of these services in rural versus urban areas, given the existing access and privacy issues in rural areas.
Commissioners agreed that evaluating behavioral services is important, and shared concern over the high rate of behavioral health providers who do not accept Medicare. There was widespread agreement about challenges and issues with the data, which staffers will consider for the next discussion. Commissioners are also interested in exploring accountable care relationships.
MedPAC Discusses Mandated Report on a Study on the Expansion Of Telehealth
Congress extended Medicare telehealth flexibilities until December 31, 2024, under the Consolidated Appropriations Act (CAA) of 2023. The CAA of 2023 also required that MedPAC report telehealth considerations to Congress in the June 2023 report. The report will assess whether beneficiaries having access to various modes of care (in-person, audio and video, audio only) affects quality outcomes, access, and cost. MedPAC staff outlined telehealth services utilization and Medicare expenditures on telehealth.
The analysis showed that spending for telehealth services peaked in the 2nd quarter of 2020 and has declined overall since but has not returned to pre-pandemic levels. 87 percent of telehealth spending was for clinician services paid under the physician fee schedule, with the rest of the spending going toward other providers such as federally qualified health centers and rural health clinics. The number of FFS Medicare beneficiaries who received telehealth services also peaked in the 2nd quarter of 2020 and has steadily declined since. Evaluation and Management (E&M) office/outpatient visits accounted for the majority of telehealth spending. Lastly, beneficiaries who provided their experiences in focus groups were generally satisfied with telehealth visits, while clinicians believe that telehealth visits take less time and cost less than in-person visits.
MedPAC commissioners suggested areas for follow up, with a focus on additional data in the following areas: clinicians billing Medicare who do not use telehealth and whether the reported higher volume of patients in telehealth means clinicians are seeing more people per day, a patient survey to gauge telehealth’s value, and additional information on the ratio of payment and its impact on care in urban versus rural areas.
Commissioners agreed on the clear benefits of telehealth, including continuity of care on the provider and patient side. Some commissioners were concerned that telehealth is ill-suited for FFS environments but noted it remains very valuable, with one commissioner suggesting a statement to that affect be included in the June 2023 report to Congress. Commissioners also agreed on the importance of ensuring brick and mortar telehealth companies are not impaired in the process.
Commissioners discussed their desire to use new tools to promote access to care but avoid hurting the system. Commissioners also focused on their worries with fraud and abuse. One noted the Department of Health and Human Services Office of Inspector General report showing that only 0.2 percent of all telehealth providers were identified as high risk and whether this could be plausibly analyzed. MedPAC Chair Michael Chernew acknowledged that the Medicare program is not designed for the technology changes occurring, making it difficult to study.
Commission Discusses Status of Part D Program and Areas for Future Work
In this session, MedPAC discussed trends in the Part D program, issues under current Part D structure, and Part D-related provisions in the Inflation Reduction Act (IRA). In 2022, 77 percent of Medicare beneficiaries were enrolled in Part D, with Medicare program spending totaling $95.9 billion in 2021.
In 2020, the Commission made recommendations to Congress to improve Part D, with the goal of: 1) addressing distortions in plan incentives created by rebates and discounts that increase Medicare’s costs, 2) addressing high prices and high-cost sharing, and 3) reducing plans’ reliance on cost-based reinsurance to improve incentives to manage benefits. Issues the Commission aimed to address have persisted in the program, as growth in overall Part D prices at the pharmacy accelerated in 2021 and the overall insurance risk for net Part D spending has shifted from plans to Medicare. Plans’ financial risk is also limited, as Part D plans get rebates from drug manufacturers that can be larger than their drug liability.
Additionally, MedPAC highlighted the trend of vertical integration among Part D sponsors and pharmacy benefit managers (PBMs), noting concerns about market concentration and vertical integration and the potential for anti-competitive behavior, as well as concerns about the lack of insight into prices between upstream and downstream companies. In 2021, the top five plan sponsors accounted for 88 percent of prescription drug plan enrollment and 58 percent of Medicare Advantage prescription drug plan enrollment. PBMs were used for more than 90 percent of Part D enrollees.
Regarding the IRA, MedPAC provided an overview of key Part D changes and noted that the IRA’s benefit reform will improve plan incentives, but there is less certainty on the effects of other changes. Chair Commissioner Michael Chernew noted that the Commission will be in a transition phase on its Part D work as the IRA is implemented.
Commissioner Stacie Dusetzina, whose expertise includes Part D, noted the following areas of interest: examining the incentive for plan sponsors to manage the benefit in terms of specialty drugs and protected classes, operational challenges for plans, health disparity concerns regarding smoothing mechanisms in the IRA, whether employer group waiver plans will end under the IRA, and how plans could improve at negotiating generic drug prices.
Other commissioners were interested in how biosimilars entering the market might affect pricing, impacts on quality measures in terms of Medicare Advantage Part D plans versus standalone part D plans, further data break down by beneficiaries receiving the low-income subsidy versus those that are not and beneficiaries who are disabled versus those that are not, and the role of agency brokers. Chair Commissioner Michael Chernew emphasized interest in examining vertical integration.
MedPAC will include a chapter on Part D in the March 2023 report to Congress. The Commission will also continue its analysis of direct and indirect renumeration data in spring 2023.
MedPAC Examines Policy Options to Address High Prices of Part B Drugs in Anticipation of April 2023 Vote
MedPAC continued its discussion of policy options to address high prices of Part B drugs. The topics were most recently discussed in MedPAC’s June 2022 report to Congress and September 2022 public meeting. Based on commissioner discussion, MedPAC plans to develop draft recommendations for an April 2023 or other spring meeting vote. Commissioners discussed the following policy options:
Addressing high prices of accelerated approval drugs with limited clinical evidence
Noting that there is uncertainty about whether accelerated approval drugs impact clinical outcomes at the time of approval and that manufacturers do not always complete post-confirmatory trials in a timely manner, MedPAC suggested a policy that would give the Secretary authority to cap the Medicare payment rate of drugs and biologics that are approved under the accelerated approval program until the product has converted to full approval.
While commissioners were generally supportive of the policy, many were concerned with the level of complexity that would be involved in implementation. There was broad concern on how to operationalize a payment cap for accelerated approval drugs with multiple indications. Commissioners were also concerned about the possibility of lawsuits against HHS. While no consensus was reached on how to address these issues, MedPAC plans to address these concerns within a chapter on the topic, rather than in the formal recommendation. Chair Commissioner Michael Chernew emphasized that the language of this recommendation, if formalized, would give the Secretary the authority to implement the policy, rather than require it.
Improving the price competition among drugs with similar health effects
Citing insufficient price competition for single-source products with therapeutic alternatives, MedPAC examined a policy that would use reference pricing by establishing a single ASP-based payment to drugs and biologics with similar health effects. Under this policy, each product could remain in their own billing code. Payment could be based on the volume-weighted ASPs of all products in the reference group. Reference groups could be defined by various factors, such as clinical indications, drug classification, or ease of implementation.
Several commissioners supported recommending using the volume-weighted ASPs of all products in the reference group to implement a reference pricing-based system. There was general support for applying the policy to biosimilars first, as MedPAC made a similar biosimilar-specific recommendation in 2017, and then applying the policy to other classes.
Improving financial incentives associated with the Part B drug add-on payment
Given concern that the existing 6 percent average sales price add-on payment for Part B drugs creates incentives for use of higher-priced drugs, MedPAC is considering a policy that would give the Secretary the authority to reduce add-on payments for Part B drugs paid based on average sales price (ASP) to improve financial incentives and eliminate the add-on payments for Part B drugs paid based on wholesale acquisition cost (WAC). The policy approach would change the ASP add-on to be the lesser of 6 percent, 3 percent + $24, or $220 per drug per day. Under this policy, lower-price drugs would continue to receive the existing add-on, higher-priced drugs would see part of a percent add-on converted to a flat fee, and the add-on for the most expensive drugs would be capped. Overall, the add-on payment for drugs with an ASP per administration greater than $800 would be reduced.
There was minimal discussion on this policy as commissioners continue to have widespread support for modifying the ASP add-on payment.
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This Applied Policy® Summary was prepared by Emma Hammer with support from the Applied Policy team of health policy experts. If you have any questions or need more information, please contact her at ehammer@appliedpolicy.com or at 202-558-5272.