On March 15, 2016, MedPAC submitted its 2016 annual report to Congress on Medicare payment policies for 2017.  In the Report, MedPAC makes a number of recommendations to Congress pertaining to payment under Medicare fee-for-service (“FFS”), including recommendations that have been published by the Commission in the past.  MedPAC recommends that Medicare reduce Part B payment to hospitals by 10 percent for drugs purchased through the 340B Drug Pricing Program and instead direct the savings to the uncompensated care pool.  MedPAC also recommends the elimination of a 2017 payment update for six types of providers: ambulatory surgical centers (“ASCs”), skilled nursing facilities (“SNFs”), home health agencies (“HHAs”), inpatient rehabilitation facilities (“IRFs”), long-term care hospitals (“LTCHs”), and hospice facilities.  Beyond the elimination of rate increases, the Report recommends substantial reforms to the prospective payment system (“PPS”) for SNFs, as well as rebasing the PPS for HHAs.  In addition to analysis and recommendations pertaining to Medicare FFS, the Report contains an overview of the status of the Medicare Advantage and Part D programs and makes two recommendations to payment under the MA program.

The Report includes provider payment policy recommendations based on MedPAC’s assessment of the adequacy of payment for each type of provider, as indicated by beneficiary access to care, quality of care, providers’ access to capital, and provider costs and Medicare payments.  Below is a summary of MedPAC’s recommendations to Congress in the Report.  

Hospitals

• Direct the Secretary to increase inpatient and outpatient payments by the amount specified in current law (projected to be 1.75 percent).
• Direct the Secretary to reduce 340B hospitals’ Medicare payment rates for Part B drugs by 10 percent of average sales price and direct the savings to the Medicare-financed uncompensated care pool. 
• Direct the Secretary to distribute all uncompensated care payments using data from the Medicare cost reports’ Worksheet S-10.  The transition to the use of S-10 should be phased in over three years.

Physicians and other health professionals

• Increase payment rates by the amount specified in current law for CY 2017. 

Ambulatory surgical centers

• Eliminate the update to the payment rates for ASCs for CY 2017.
• Require ASCs to submit cost data to CMS as soon as possible to allow, among other things, for MedPAC to calculate ASC Medicare margins.

Outpatient dialysis providers

• Increase payment rate by the update specified in current law for CY 2017 (projected to be 0.55 percent). 
• MedPAC also reiterated two prior recommendations: (1) focus the low-volume payment adjustment on protecting only facilities critical to beneficiary access, and (2) examine the accuracy of dialysis cost report data under the PPS.  

Skilled nursing facilities

• Eliminate the market basket update for 2017 and 2018.
• Direct the Secretary to revise the PPS for SNFs.  The new payment system should redirect payments from intensive therapy that is unrelated to patient care needs, while continuing to provide high payments for patients with high needs and medically-complex care.  
• Direct the Secretary to report to Congress in 2019 (following implementation of the new PPS) on the effects of the reformed PPS, and make any additional adjustments to align payments with costs. 

Home health agencies

• Direct the Secretary to eliminate the payment update for 2017. 
• Direct the Secretary to implement a two-year rebasing of the payment system beginning in 2018 by assessing margins of efficient HHAs and reducing payments accordingly. 
• Direct the Secretary to revise the PPS to eliminate the use of therapy visits as a factor in payment determinations, concurrent with rebasing.

Inpatient rehabilitation facilities

• Eliminate the payment update in FY 2017. 
• Direct the Secretary to conduct focused medical record review of IRFs with unusual patterns of case mix and coding (including discrepancies between severity as coded in the acute care hospital compared with that coded in the IRF).
• Expand the IRF outlier pool to redistribute payments more equitably across cases and providers to increase outlier payments for the most costly cases.

Long-term care hospitals

• Direct the Secretary to eliminate the payment update for FY 2017. 

Hospice

• Eliminate the payment update for FY 2017 (estimated to be 2.2 percent or 2.5 percent). 

Medicare Advantage

• Eliminate the cap on benchmark amounts and the doubling of quality increases in certain counties, as these adjustments are based on older, inequitable, administratively set payments. 
• Direct the Secretary to make coding adjustments to account for differences in coding between Medicare Advantage and FFS in a more equitable manner by eliminating health risk assessments as a source of diagnoses for risk adjustment and by basing the CMS hierarchical condition categories model on two years of diagnostic data.

Medicare Part D

• No recommendation to Congress. 

The Report is available here.  MedPAC’s fact sheet accompanying the Report is available here.

Reporter, Igor Gorlach, Houston, +1 713 276 7326, igorlach@kslaw.com.