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Category: MedPac


From: MedPac website – 3/15/16

Press Release

Washington, DC, March 15, 2016—Today, the Medicare Payment Advisory Commission (MedPAC) releases its March 2016 Report to the Congress: Medicare Payment Policy. The report includes MedPAC’s analyses of payment adequacy in fee-for-service (FFS) Medicare and provides a review of Medicare Advantage (MA) and the prescription drug benefit, Part D.

Fee-for-service payment rate recommendations. The report presents MedPAC’s recommendations for 2017 rate adjustments in FFS Medicare. These “update” recommendations—which MedPAC is required by law to submit each year—are based on an assessment of payment adequacy that examines beneficiaries’ access to and use of care, the quality of the care they receive, supply of providers, and providers’ costs and Medicare’s payments. In this year’s report, MedPAC continues to make recommendations to ensure high-quality care for Medicare beneficiaries at lower costs to the program. In light of its payment adequacy analyses, MedPAC recommends no payment update for 2017 for four FFS payment systems: ambulatory surgical centers, long-term care hospitals, inpatient rehabilitation facilities, and hospice. It recommends that payments be updated by the amount specified in current law for outpatient dialysis facilities and for physicians and other health professionals. For two types of providers, skilled nursing facilities and home health agencies, the Commission recommends reforming their prospective payment systems to more equitably distribute payments among providers and better maintain access for all beneficiaries. It also recommends two years of restraining and rebasing home health and skilled nursing facility payment rates.

Increasing hospital payments and targeting uncompensated care payments to hospitals that provide the greatest shares of uncompensated care. For inpatient and outpatient hospital services, the Commission recommends the payment increase specified in current law, concurrent with reductions to the payment rate for Part B drugs at 340B hospitals and changes to the size and distribution of the Medicare hospital uncompensated care pool (discussed below). Together, this package of recommendations will increase payments to hospitals by more than $3 billion. Nonprofit hospitals with high shares of Medicaid and low-income Medicare patients qualify for the 340B Drug Pricing Program. These hospitals receive substantial discounts from drug manufacturers for Part B drugs. The Office of Inspector General estimates that the discount across all 340B providers is 34 percent of the average sales price (ASP). Because Medicare does not currently adjust its payment rates for the lower drug acquisition cost at 340B hospitals, it pays 340B hospitals much more than their costs for these drugs. Reducing the price that Medicare pays 340B prospective payment system hospitals for separately payable Part B drugs by 10 percent of ASP would accomplish two things. First, it would reduce beneficiary cost sharing. Second, it would reduce program spending for Part B drugs by approximately $300 million—funds that we recommend be redirected to the Medicare-financed uncompensated care pool. In addition to expanding the uncompensated care pool, we recommend distributing this pool on the basis of better data on uncompensated care (which hospitals report on Worksheet S-10 of their cost reports). This would better target additional payments to hospitals that provide above-average shares of uncompensated care.

Examining inpatient rehabilitation facility (IRF) coding practices. New Commission analysis finds that an IRF’s mix of case types is correlated with its profitability under Medicare. In addition, we find that IRFs with high Medicare profit margins have patients who are, on average, less severely ill in their preceding acute care hospital stay but who then appear to be more functionally disabled upon admission to the IRF, compared with other IRFs. This discrepancy suggests the possibility that patient selection and assessment and coding practices may contribute to differences in costs—and profitability—across providers. The Commission recommends that the Secretary of Health and Human Services analyze IRF coding to determine whether it accurately reflects the rehabilitation needs of patients. This analysis should begin with focused medical record reviews of IRFs that have unusual patterns of case mix and coding. In the near term, we recommend that CMS better align IRF payments and costs through an expanded high-cost outlier pool.

Medicare Advantage. Current law requires that MA benchmarks be reduced over time to bring greater financial neutrality between MA and FFS. As a result, plan bids have come down in relation to FFS spending while enrollment in MA continues to grow. These benchmark changes have resulted in more competitive plan bidding, and MA plans continue to offer benefit packages that beneficiaries find attractive. However, current law contains two adjustments to the county benchmarks that create inequity among MA plans. One adjustment places a cap on benchmarks in specified counties and can arbitrarily limit plans’ quality bonuses. The other adjustment doubles quality increases in certain counties. We recommend eliminating both adjustments to make the benchmarks simpler and more equitable, while leaving overall payments at roughly the same level. Recently, the Commission has expressed concerns about another source of inequity between MA and FFS payments: Analyses by MedPAC and others find that MA plan enrollees have higher risk scores than similar FFS beneficiaries because of plans’ more intensive coding efforts. Higher risk scores translate into higher payments for plans. CMS makes an across-the-board adjustment to the scores to make them more consistent with FFS coding. We find that CMS would need to raise the coding adjustment (i.e., lower enrollees’ risk scores) and change the way diagnoses are collected for use in the risk adjustment process to ensure the coding levels in aggregate are roughly equal between the FFS and MA programs. The report includes several recommendations to achieve better coding equity between MA and FFS and to better target plans that seem to engage in intensive coding practices.

Part D. Participation in the Medicare drug benefit remains quite high, with about 70 percent of Medicare beneficiaries (about 39 million beneficiaries) enrolled in Part D plans in 2015. The average beneficiary has between 19 and 29 stand-alone drug plans to choose from, in addition to many MA plans that offer the drug benefit.

Between 2007 and 2014, Part D program spending increased from $46.7 billion to $78 billion. Spending for Part D reflects two underlying trends. First, there has been a shift toward use of generic drugs, with generics accounting for 84 percent of all prescriptions filled in 2013 compared with 61 percent in 2007. This shift has mitigated the benefit spending on which plan sponsors base premiums and has helped keep enrollee premiums low. A second trend, however, is that Part D’s reinsurance payments, or the largely program-financed payments to plans for the highest spending enrollees, have grown by an average of 19 percent per year. For the future, the pharmaceutical pipeline is shifting toward greater numbers of biologic products and specialty drugs, many of which have few therapeutic substitutes and high prices. This change will put additional upward pressure on program spending in the catastrophic phase of the benefit. A list of recommendations is included in the accompanying fact sheet. The entire report is available online at

Click here for link to MedPac Fact sheet.

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AHA Critical of MedPACS’s “misdirected” 340B Payment Proposal

From: AHA News – 1/15/16

The AHA last week criticized as “misdirected” and a blow to patient care the Medicare Payment Assessment Commission’s (MedPAC) recommendation that Congress reduce Part B drug payment rates to hospitals participating in the 340B Drug Pricing Program.

At its Jan. 14 meeting, the commission voted 14 to 3 to reduce Part B drug payment rates to 340B hospitals by 10% of the average sales price of the drugs. The proposal would redistribute the estimated $300 million in savings to hospitals providing uncompensated care services.

Another recommendation would require Medicare to distribute uncompensated care payments made under the disproportionate share hospital program based on data from Schedule S-10 of the hospital’s Medicare cost report, where hospitals outline uncompensated-care spending. The change would be phased in over three years. The Centers for Medicare & Medicaid Services currently distributes the funds based on Medicaid and Medicare Supplemental Security Income data.

The AHA and many other hospital and health system leaders expressed strong disappointment in the recommendations, which will be formally submitted to Congress in March.   

“MedPAC is penalizing hospitals and the patients they serve instead of addressing the real issue, the skyrocketing cost of pharmaceuticals,” said AHA Executive Vice President Tom Nickels. “We are disappointed MedPAC has ventured so far afield from their mission.”

Before MedPAC’s vote, the AHA laid out its concerns about the proposals in a detailed Jan. 11 letter to the commission. The association urged MedPAC to withdraw its draft recommendation.

“This recommendation is outside of the scope of MedPAC’s mission, lacks a clear purpose and penalizes certain hospitals for their ability to obtain discounts on the items and services they purchase,” wrote Ashley Thompson, the AHA’s senior vice president for public policy analysis and development. She urged the commission to “undertake an analysis of the trend of rapidly increasing drug prices, which presents the Medicare program and its beneficiaries with remarkable challenges.

In its letter to MedPAC, the AHA noted that Congress created the 340B Drug Pricing Program 23 years ago to allow eligible entities to stretch limited resources to expand access to care for vulnerable patients. “The 340B program is crucial to helping provide low-cost pharmacy services to patients, and it remains a critical component of helping safety-net health care providers create healthier communities –especially in the face of rapidly increasing drug costs,” the AHA wrote MedPAC. “Many 340B hospitals treat a high number of low-income patients, face cuts to disproportionate share hospital payments and have negative operating margins.”

The association faulted the commission for “venturing beyond its scope” by seeming to question Congress’s design of the 340B program. The AHA also said it is unclear exactly what MedPAC’s proposal is meant to accomplish. At its December meeting, commissioners expressed concern about the growth of the program and suggested tying 340B savings to hospitals that provide more compensated care. Commissioners also indicated an interest in reducing the Part B drug copayments of Medicare beneficiaries.

But the commission offered no evidence that its proposal would result in better or more care for elderly patients, said the AHA. It also pointed out that 340B hospitals provide uncompensated care that is about 95% higher than other hospitals as a percent of their revenue.

And the AHA said MedPAC’s recommended policy changes “would not directly benefit many Medicare beneficiaries, dually eligible Medicare beneficiaries included, but would instead penalize 340B hospitals, including those serving high numbers of dually eligible beneficiaries,” the AHA stated.

The AHA said it was wrong for the commission to propose cutting hospital payments “as a back-door method of obtaining discounts on drugs,” and suggested it review alternatives that would let Medicare access discounts directly through Medicare Part D.

The association also pointed out that the Health Resources and Services Administration (HRSA) on Aug. 28 proposed comprehensive changes to the 340B program. HRSA’s proposed omnibus guidance, issued as a notice, covers entity eligibility; patient definition; Group Purchasing Organization prohibition; contract pharmacy; duplicate discounts; and covered entity audits. It also includes enhanced program integrity requirements for pharmaceutical manufacturers participating in the 340B program.

“MedPAC should refrain from considering any recommendations related to the 340B program until HRSA finalizes these programmatic changes,” the AHA told the commission. 

The AHA recently released an animated video detailing how hospitals use 340B savings to they receive from discounts on high prescription drug prices to reinvest in programs that enhance patient services and access to care. 

AHA Critical of MedPACS’s “misdirected” 340B Payment Proposal


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MedPac News

The Medicare Payment Advisory Commission, better known as MedPAC is in the process of finalizing their 2017 Medicare payment recommendations to Congress. This body is playing an increasingly significant role in the future changes to the Medicare program’s payments and service delivery.


While the Center for Medicare and Medicaid Services (CMS) has discretion to accept or reject MedPAC’s recommendations, we finding that Congress is implementing their recommendations especially where there are material reimbursement savings such as the recent site-neutral payment policy recently implemented by the recent passage of the Bipartisan Budget Act of 2015.


The following are MedPAC’s 2017 recommendations to Congress that were passed on Thursday January 14th:


Recommendation to update payments for inpatient and outpatient services in 2017 as outlined under current law by 1.65%.

Recommendation to reduce Part B drug payment rates for hospitals participating in the 340B Drug Pricing Program by 10% of the average sales price and redistribute those savings to hospitals providing uncompensated care services.

Recommended the use of cost report worksheet S-10 to distribute the Uncompensated Care payments and to phase this in over three years.


Medicare Advantage plans

Recommendation 1: Congress should eliminate the cap on benchmark amounts and the doubling of the quality increases in specified counties.

Recommendation 2: Congress should direct CMS to develop a risk-adjustment model that uses two years of diagnostic data from both fee-for-service Medicare and Medicare Advantage but that does not include diagnoses from health risk assessments. Then CMS should apply a coding adjustment that accounts for the remaining differences in coding between fee-for-service Medicare and Medicare Advantage.

Physician and other health professional services

Recommendation to increase pay rates by the amount specified by law.


Recommend eliminating the update to pay rates for ambulatory surgical centers and require ambulatory surgical centers to submit cost data.


Recommend increasing the outpatient dialysis base pay rate by the update specified by law.

Skilled Nursing

Recommend elimination of the market basket update for 2017 and 2018 and direct CMS to revise the prospective payment system for nursing facilities. In 2019, CMS should report on the effects of the new pay system and adjustments payments as needed to align them with costs.

Home health

Recommend to direct CMS to eliminate the pay update and rebase the pay system for two years, beginning in 2018. Congress should direct CMS to revise the pay system to eliminate the use of therapy visits as a factor in payment determinations, concurrent with rebasing.


Recommend elimination of the pay update.

Long-term care hospitals.

Recommend that CMS eliminate the pay update.

Inpatient rehabilitation facilities

Recommendation 1: Congress should eliminate the update to the Medicare payment rates.

Recommendation 2: CMS should review medical records of rehabilitation facilities that have unusual patterns of case mix and coding.

Recommendation 3: CMS should expand the outlier pool.

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