On September 7 and 8, 2023, the Medicare Payment Advisory Commission (MedPAC) held a virtual public meeting. The meeting included the following sessions:

• Context for Medicare payment policy;
• Medicare Advantage: MedPAC workplan;
• Standardized benefits in Medicare Advantage plans;
• Improving MedPAC’s estimate of Medicare Advantage coding intensity;
• Medicare’s Acute Care Hospital at Home program; and
• Ambulatory Surgical Centers: A primer.

The full agenda for the meeting and the presentations for the sessions are available here.

COMMISSIONERS REVIEW DRAFT CHAPTER ON CONTEXT FOR MEDICARE PAYMENT POLICY FOR MARCH 2024 REPORT

In this session, MedPAC commissioners reviewed context for Medicare payment policy, which will be included in a chapter in MedPAC’s March 2024 Report to Congress. Draft versions of chapters are not made publicly available. MedPAC staff focused on the following topics:

• Recent spending trends: Medicare spending is projected to grow by 7 or 8 percent per year on average from 2022 to 2031, resulting in Medicare spending nearly doubling from $900 billion in 2022 to $1.8 trillion in 2031.
• Factors influencing Medicare’ future spending: Three main factors are influencing Medicare spending growth: 1) inflation, 2) growth in the number of Medicare beneficiaries, and 3) growth in the volume and intensity of services delivered per beneficiary, meaning that providers furnish more expensive services instead of less expensive ones.
• Financial status of Medicare’s two trust funds: The Medicare Hospital Insurance Trust Fund, which finances Part A services, is expected to have sufficient funds until 2031. However, this trust fund has been financed by fewer workers per beneficiary over time and is projected to continue to decrease. Medicare’s Supplementary Medical Insurance Trust Fund, which helps pay for Part B clinician and outpatient services and Part D prescriptions, constitutes a growing share of federal revenues.
• Affordability of beneficiary premiums and cost sharing: The median Medicare beneficiary has modest resources to draw on when paying for premiums and cost sharing. MedPAC noted that beneficiary cost sharing is likely to decrease following Inflation Reduction Act (IRA) changes. When Medicare increases payment rates for providers, it increases beneficiaries’ premiums and cost sharing. 8 percent of all Medicare beneficiaries reported trouble getting care due to cost, based on MedPAC’s analysis of beneficiaries’ experiences in CMS’s 2020 Medicare Current Beneficiary Survey. 15 percent of beneficiaries with fee-for-service (FFS) Medicare and no supplemental coverage reported trouble getting care due to cost.

Commissioners highlighted areas they are interested in seeing featured in the chapter, including more information on supplemental benefits and breaking down data further by Medicare Advantage versus FFS, race and insurance type, and out-of-pocket costs by plan type. Two commissioners noted the Inflation Reduction Act (IRA) as an area to highlight, with one suggesting information on how drug manufacturers may react to provisions that reduce Part D cost sharing for beneficiaries. Commissioners also provided feedback on the wording and language used in the draft chapter. While commissioners did not explicitly discuss consolidation in this session, feedback indicates that plan consolidation will be featured in the chapter when it is publicly available. MedPAC staff will incorporate commissioner feedback into the chapter, which commissioners will review in January 2024.

MEDPAC DISCUSSES WORKPLAN FOR MEDICARE ADVANTAGE

 In this session, MedPAC staff reviewed and discussed its workplan for Medicare Advantage (MA) over the next year. The Commission will continue its work from previous years, as MA beneficiaries now account for a large and growing share of Medicare enrollment. Over the next cycle, MedPAC will evaluate MA enrollment and availability, access and quality, benefit standardization, risk adjustment and coding intensity, favorable selection, trends in the market for dual-eligible special needs plans, and the completeness of encounter data. The Commission will release five total chapters on MA in the March and June 2024 Reports to Congress. MedPAC’s chapter on access and quality in the June report will specifically include MA plan performance on ambulatory care sensitive hospitalizations, plan networks, prior authorizations, and claim denials.

Overall, commissioners expressed strong interest in continuing to evaluate and optimize the MA program and supported the proposed workplan for this cycle. Michael Chernew, MedPAC Chair, noted that the goal of the reports is to collect data to inform the Commission’s understanding of these MA-related issues, rather than issue new recommendations. Commissioners suggested multiple topics to focus on, such as including plan outcomes for beneficiaries served and provider satisfaction rates, evaluating how MA plans work for beneficiaries who are frail or seriously ill, and incorporating more analysis of plan consolidation to understand the impact at a local level. Some commissioners also noted interested in understanding how nursing home residents are served by MA plans.

MAJORITY OF COMMISSIONERS FAVOR SOME STANDARIZATION OF MEDICARE ADVANTAGE PLAN BENEFITS

More than half of Medicare beneficiaries with Part A & B coverage are enrolled in MA plans. While MA plans must offer Part A & B services, there is no standardization across plans in terms of cost sharing or supplemental benefits. There is also no limit as to how many plans a carrier can offer. MedPAC staffers found that the average MA beneficiary has 41 MA plans available in their area. The number of MA plans has more than doubled since 2013, with the average number of plans per insurer increasing by 53 percent.  Accordingly, many commissioners are concerned that beneficiaries are overwhelmed by the number of plans available, and do not have the tools to make an informed choice between these plans. The standardization of MA benefits has been proposed as one way to address these concerns by limiting the number of plans available and allowing for easier comparisons across plans. To guide future work to standardize MA benefits, commissioners discussed which benefits and types of MA plans are the best candidates for standardization, how that standardization should be implemented, and other issues that would need to be addressed in regulations, such as whether insurers could still offer non-standardized plans.

Regarding which benefits should be standardized, commissioners generally favored standardizing Part A & B services, and were also generally in favor of standardizing dental, vision, and hearing, though there was more debate on these supplemental benefits. Other MA supplemental benefits, such as gym memberships or in-home support services, were seen as poor candidates for standardization and areas where plans could continue to innovate if other areas were standardized. Commissioners agreed that conventional plans were the type of MA plan that made the most sense for standardization and should be the starting point of any future policy.

Regarding implementation, commissioners were mostly in favor of having a set number of standardized packages for each benefits category (e.g. four different standard dental packages) that carriers would then combine to create plans. This would allow for easier comparison across plans by consumers, regardless of the number of plans available in their market. Commissioners also discussed whether there should be a limit on the number of plans offered by a given carrier or within a given market.

The commissioners were generally against allowing non-standard plans to be offered, pointing out that, as carriers choose the price of their plans, they could simply set the price of the standard plans too high to appeal to consumers, effectively forcing them to choose a non-standard plan. The commissioners were generally split on grandfathering in existing plans once standardization is implemented. The primary concerns about standardization were that it would stifle innovation, and that the increased administrative burden of standardization would make it more difficult for smaller plans to compete.

While most commissioners were in favor of some sort of standardization, many expressed that this standardization would need to take place over at least two cycles to ensure proper implementation.

MEDPAC DEBATES BEST METHOD TO ESTIMATE CODING INTENSITY

Medicare Advantage (MA) capitation payments are adjusted to account for each enrollee’s expected healthcare costs, with plans receiving higher capitation payments for sicker enrollees. CMS captures this expected cost, referred to as a risk score, using the CMS-hierarchical condition category (CMS-HCC) model, which assigns risk scores based on demographic characteristics and prior year diagnoses. Unlike fee-for-service (FFS) Medicare providers, who do not receive adjusted payments based on beneficiary health, MA providers have a financial incentive to code diagnoses. MA plans also utilize two tools, chart reviews and health risk assessments (HRAs), that are not used in FFS and that add diagnoses that are used for risk scoring. Accordingly, MA beneficiaries have higher risk scores than equivalently healthy FFS beneficiaries. MedPAC has been working for years to better estimate this difference, referred to as “coding intensity.” Medicare accounts for coding intensity via a coding intensity adjustment that decreases MA risk scores.

MedPAC staffers presented research on three different estimates of coding intensity:

1. The demographic estimate of coding intensity (DECI) which takes the MA to FFS CMS-HCC risk score ratio and divides it by the MA to FFS ratio of a demographic only risk score measure,
2. MedPAC’s cohort method, which compares differences in the diagnosis coding component of the CMS-HCC for MA and FFS cohorts by age, sex, and enrollment length, and
3. A revised MedPAC cohort method, which accounts for differing MA and FFS eligibility shares and removes restrictions on continuous enrollment used in the standard MedPAC method.

They found that, under the MedPAC cohort method, MA risk scores have grown by 10.8 percent relative to FFS from 2007 to 2021. This figure rose to 13.2 percent using the revised MedPAC method. When academics used the DECI method to estimate coding intensity in a separate study, they found that MA risk score growth relative to FFS was 20 percent from 2006 to 2019. MEDPAC staffers were able to reconcile the bulk of the differences in the revised MedPAC and DECI estimates by recalculating the DECI results using more complete data than the academics had access to and by counting new enrollees as having no coding intensity, as these members risk scores would be based purely off of demographic factors and not diagnoses code history. After extending the revised DECI analysis to 2021, MedPAC staffers found a coding intensity estimate of 14.1 percent, as compared to 13.2 percent using the revised MedPAC method. These figures are much higher than Medicare’s coding intensity adjustment, which was 5.9 percent in 2021.

The commissioners then debated whether to use the DECI method in future MEDPAC research on coding intensity and how larger coding intensity adjustments would impact MA plans. The commissioners listed the following as factors that would need to be considered in any coding intensity adjustment changes:

• MA plans display considerable variability in risk scores, with some having risk scores below FFS. It is important that future policy does not punish plans that perform well and code conservatively.
• Coding maximalization is much easier to do at scale, meaning that smaller plans could suffer more from larger coding intensity adjustments.
• A large component of risk scoring differences between MA and FFS comes from the use of HRAs and chart review, not differences in diagnosis codes.
• It is important not to punish accurate and complete documentation which could create coding intensity but also leads to better patient outcomes.

The commissioners agreed that the ultimate goal would be to administratively simplify coding in a way that allows physicians to spend more time delivering care while not discouraging plans from serving sicker members. The above discussion was a measurement exercise and was not intended to change recommendations.

MEDPAC DISCUSSES THE ACUTE CARE HOSPITAL AT HOME PROGRAM

During this session, MedPAC staff discussed Medicare’s Acute Care Hospital at Home (ACHaH) program, which was established during the pandemic in November 2020 as an alternative to the traditional inpatient stay. Each participating hospital has discretion to determine the clinical conditions and criteria for ACHaH services but is required to have two in-person daily clinical visits by a nurse or paramedic, a system for 24/7 contact between beneficiaries and the hospital, the ability for clinical personnel to reach the home within 30 minutes, and monthly reporting of program metrics. Studies of HaH have been inconclusive. Brigham and Women’s Hospital Medicare found patients had shorter lengths of stay, lower readmissions, and lower cost of care compared to an inpatient stay, but patients received fewer laboratory tests and radiology services. Other HaH trials reported longer lengths of stay and inconclusive cost data. Evaluating ACHaH is difficult due to patient self-selection, limited data availability, varied services provided, and the potential for higher costs at home.

Commissioners discussed concerns about lack of generalizability of data and effectiveness. Commissioners raised several concerns about the program and offered suggestions for improvement related to data collection, evidence-based support, caregiver assistant, and equitable access. Several commissioners noted concerns regarding study design and data collection, including the applicability of studies conducted outside of the US, particularly when calculating length of stay, and the need for randomized studies to reduce selection bias. Commissioners also advocated for quantitative primary data collection and uniformity to gain evidence-based clarification. One commissioner suggested ACHaH be included as a project under the Center for Medicare and Medicaid Innovation (CMMI). Commissioners also discussed leveraging virtual visits to reduce costs, the importance of assessing caregiver burden, and concerns with potential barriers for patients lacking social support and resources, particularly in community networks and areas with rural hospitals where this model has strong potential. Commissioners suggested adjusting quality measures, with one commissioner suggesting data be collected on reduced infection rates or accidental falls at home in the program.

Commissioners agreed that safe and effective home-based care provide value when provided to the right patients. However, they also expressed concerns about associated costs, need for caregiver support, and limitations under the current HaH program. Despite support, commissioners are hesitant to suggest the program be expanded until concerns are addressed. The program is set to end in December 2024, and commissioners aim to collect more quantitative data as it continues, noting that its short tenure and low volume of uptake have made it difficult for commissioners to assess the program.

COMMISSION DISCUSSES FACTORS SLOWING THE SHIFT OF SURGICAL PROCEDURES FROM HOPDS TO ASCS

The Commission discussed the shift of surgical procedures from hospital outpatient departments (HOPDs) to ambulatory surgical centers (ASCs). ASCs are considered standalone facilities, while HOPDs are owned by and typically attached to a hospital. ASC payment rates are based on outpatient prospective payment system (OPPS) payment rates and are the product of the relative weight and ASC conversion factor. In general, payment rates for the same procedures are lower in ASCs than in HOPDs.

The Commission advised that the shift of procedures from HOPDs to ASCs could benefit Medicare, beneficiaries, and providers. As payment rates for the same procedures are lower in ASCs, patients receiving care in an ASC typically incur lower cost-sharing expenses. The lower cost-sharing in ASCs would mean less “nonoperative” time for beneficiaries. Additionally, lower Medicare spending and beneficiary cost-sharing could be partially offset if the shift to ASCs increases the volume of procedures. For providers, this shift would allow them to customize the surgical environment and have specialized staff given there would be more procedures in the same amount of time compared to HOPDs. Additionally, physician owners of ASCs would be able to receive a share of the ASC facility payments.

MedPAC staff also highlighted concerns about the shift from HOPDs to ASCs, particularly the limited quality data. Currently, measures in the ASC quality program provide an incomplete assessment of ASC performance on surgical outcomes. The Commission recommends that CMS add more measures on clinical outcomes, such as the rate of surgical site infections and patient improvement after joint replacement.

While some surgical procedures have shifted from HOPDs to ASCs, the shift has been slow. For example, MedPAC advised that among the highest volume ASC procedures in 2016, cumulative growth in volume from 2016 to 2021 was 1.5 percent  in ASCs and -3.4 percent in HOPDs.

The Commission detailed several factors that may be limiting the shift of procedures from HOPDs to ASCs, including:

• Limited ASC presence in rural areas: The Commission reported that the number of ASCs per 100,000 residents in the most rural areas by rural-urban continuum code (RUCC) is 0 (zero), compared to 1.9 in the most urban areas.
• Limited ASC presence in areas with high social risk factors: Based on area deprivation index (ADI), the areas of highest social risk have 1.7 ASCs per 100,000 Part B beneficiaries, while the areas of lowest social risk have 15.5 per 100,000.
• Restrictive CON laws in some states: Certificate-of-need (CON) laws require healthcare providers, including ASCs, to receive state permission to build facilities or make expansions. CON laws affect the number of ASCs per capita and can therefore lead to disparities in the availability of alternative surgical settings.
• Narrow range of procedures offered in ASCs: 29 surgical procedures comprise 75 percent of the total surgical volume in ASCs while 134 surgical procedures comprise 75 percent of the total surgical volume in HOPDs. The Commission expressed concern that payment rate inaccuracies could contribute to the narrow focus of ASCs as ASC payment rates are derived from HOPD costs, meaning it is unlikely that HOPD costs accurately reflect ASC costs and ASCs are likely relatively overpaid for some services and underpaid for others.
• The growing number of physicians employed by hospitals: From 2012 to 2022, the share of physicians working as employees increased from 42 percent to 50 percent and the share of physicians working in practices owned by physicians declined from 60 percent to 47 percent.[1] These trends can limit the growth of ASCs as fewer physicians are available.

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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.

[1] Kane, C. 2023. Policy research perspectives: Recent changes in physician practice arrangements: Shifts away from private practice and towards larger practice size continue through 2022. Chicago, IL: American Medical Association.