With Congress again trying to reform Medicare, the program's independent advisor is out with its own suggestions, including a call to end to what has become a revenue buffer for many hospitals and an integral part of their physician acquisition strategies.
In its 15th March report, the first of two published each year, the Medicare Payment Advisory Commission warns of a looming crisis for the nation, noting that the Medicare Trust Fund is slated to run dry by 2026 and arguing that "significant variation" in quality and spending is "putting beneficiaries at risk" both "medically and financially."
The Commission, also known as MedPAC, is building on previous years' proposals and calling for an equalizing of payments for similar services across the settings, as a way to replace what the 17 members describe in the report as an unorganized reimbursement system riddled with poor incentives.
"For the hospital inpatient and outpatient payment systems we have developed a package of recommendations that reduces excessive payment rates for certain outpatient hospital services and aligns them with rates paid in physician offices, creates greater equity between rates paid for similar patients in acute care hospitals and long-term care hospitals, and increases hospital payment rates for fiscal year 2015," MedPAC chair Glenn Hackbarth wrote in the report's introduction to Congress.
The recommendations as a whole will "improve financial incentives in these payment systems while maintaining adequate overall payments," wrote Hackbarth, the founder and former CEO of Harvard Vanguard Medical Associates (now a part of Atrius Health) and a former Medicare deputy administrator. By MedPAC's analysis, Medicare, while a foundation of hospital business, is not necessarily profitable for most and in fact some may end up losing money in a range of clinical areas.
"We estimate that the aggregate hospital Medicare margin was –5.4 percent in 2012 and project it will be about –6 percent in 2014," the Commission wrote, while also noting that some "relatively efficient hospitals" continue to succeed in both cost and quality and generated positive Medicare margins of 2 percent in 2012.
Across all payers, though, the Commission found that total hospital margins (not including critical access providers) increased to 6.5 percent in 2012, the highest since the agency started tracking the data in 2005 and in large part driven by private payers.
"While Medicaid and Medicare payment rate increases have been modest in recent years, all-payer average price increases have exceeded cost growth due to strong average increases in private-payer prices" with annual growth rates of about 5 percent since 2011, MedPAC wrote.
Hospital inpatient and outpatient services
One of the main priorities of MedPAC for several years now has been addressing an issue that's also starting to rankle private payers: office-based, hospital-employed physicians billing their services on an outpatient basis.
"A core principle guiding the Commission is that Medicare should pay the same amount for the same service, even when it is provided in different settings," MedPAC members wrote.
Of course that's not the case now; depending on whether the service is provided in an outpatient clinic or a physician's office, Medicare's payment and seniors' coinsurance responsibilities can vary by as much as 80 percent.
One example MedPAC cites is the echocardiogram.
Medicare pays $189 for a level II echocardiogram in freestanding doctors' offices, but $453 for one provided in hospital outpatient facilities -- and Medicare-covered hospital outpatient echocardiograms increased 33 percent between 2010 and 2012, while those in physician offices declined 10 percent.
Both taxpayers and seniors are picking up the tab for the differential: "the higher Medicare rates resulted in beneficiary cost sharing increasing from $38 to $91 for level II echocardiograms," the Commission wrote.
"To remove this distortion in the payment system, the Commission recommends aligning outpatient prospective payment rates with physician office rates for certain services," although other than evaluation and management visits MedPAC isn't suggesting any specific services.
In other areas of hospital payment parity, MedPAC is suggesting increasing payment rates by 3.25 percent for the acute care hospital inpatient and outpatient prospective payment systems, while setting long-term care hospital base payment rates for non-chronically critically ill cases equal to those for acute care hospitals, with the savings redistributed for outlier payments.
Currently, long-term care hospitals are "paid much higher rates than traditional acute care hospitals, even for patients who do not require an LTCH's specialized services," MedPAC wrote.
By equalizing the rates, the Commission said, long-term care hospitals would see non-chronically critically ill diagnosis related group payment rates reduced from an average of about $40,000 a case to $12,000, while rates for chronically critically ill patients would remain at about $50,000 per case.
Physician and professional services
As Congress gets closer to replacing the Sustainable Growth Rate system, MedPAC is reiterating its previous recommendations for physician and professional services -- starting with repealing the SGR, its "highest policy priority with respect to Medicare's payments to physicians and other health professionals."
The Medicare physician fee schedule "must be rebalanced to achieve greater equity of payments between primary care and other specialties," and "must move away from unrestrained FFS," the Commission wrote.
The Commission wants to replace the SGR with a 10-year "path of legislated updates" that have higher payments for primary care services, frozen for 10 years, with non-primary care service fees reduced by at most 3 percent in each of the first three years and then frozen.
MedPAC is also suggesting that Congress authorize CMS to collect more data "to improve the relative valuation of services," identify "overpriced services" and "rebalance payments" for them, and "encourage ACOs by creating greater opportunities for shared savings."
Ambulatory surgical centers
A growing part of the nation's healthcare system, ambulatory surgical centers are also not very well scrutinized, MedPAC argued, recommending that they be subject to greater cost and quality data reporting and disclosure.
Although ambulatory surgical centers started submitting quality data to CMS in 2012, the agency has not yet publicly released the full information and MedPAC members think Congress should require the ambulatory centers to submit cost data as well.
For not the first time, the Commission is recommending that Congress authorize CMS to create a value-based purchasing program for ASCs to "reward high-performing and penalize low-performing providers." The Commission is also calling on Congress to not increase ASC payment rates in 2015, saying "although we do not have cost and quality data, the indicators we have suggest that payments have been adequate."
Post-acute, long-term care
Elsewhere in the Medicare care continuum, MedPAC sees a lot of room for improvement and savings.
For post-acute care providers, "margins indicate that program payments are exceptionally high, and the wide variation across providers in Medicare margins highlights core problems with the design of the prospective payment systems," MedPAC wrote.
While CMS has adopted "setting-specific" rules for which patients are appropriate for inpatient rehabilitation facilities and long-term care hospitals, there is still substantial overlap in the types of patients treated in the different settings, which can "can unnecessarily increase program spending," the Commission argued.
Plus, three of the four settings -- home health agencies, inpatient rehab facilities and skilled nursing centers -- use different patient assessment systems, and although CMS has tested a common assessment tool across post-acute care settings and in acute hospitals at discharge, the agency does not have a timeline to implement it, MedPAC wrote.
All that considered, MedPAC is calling on Congress to direct CMS to start using common patient assessments for home health, skilled nursing, inpatient rehab and long-term care hospitals by 2016.
In long-term care payments, MedPAC is recommending that Congress eliminate the market basket update for skilled nursing facilities and rebase payments -- starting with an initial reduction of 4 percent.
MedPAC is also suggesting reducing payments to home health agencies with higher than average rates of hospital readmissions, as well as eliminating planned payment increases for inpatient rehab facilities and long-term care hospitals.
Hospice
More and more seniors approaching the end of their lives have been turning to hospice since the benefit became available through Medicare in 1983. From 2000 to 2012, the number of Medicare patients using hospice increased from about 22 percent to 45 percent -- although by some estimates, the option remains underappreciated and underused..
Nearly a quarter of Medicare patients who use hospice enter the program in the last 10 days of their life, leaving them perhaps not benefiting "as fully from the palliative and supportive services that hospice offers patients who enroll earlier," MedPAC argued.
Nonetheless, payment reforms like accountable care organizations "may help reduce financial incentives that can deter hospice referral," MedPAC wrote, and and in any case, hospice options are becoming increasingly available -- one reason why MedPAC is recommending that Congress not update hospice payment rates for 2015.
MedPAC's main recommendation for hospice is to integrate into the Medicare Advantage benefit package. Currently, hospice services for seniors with Medicare Advantage are reimbursed on a fee-for-service basis.
With almost a third of Medicare beneficiaries enrolling in Advantage plans, "it would make sense for the plan to have responsibility for the full continuum of care, including hospice," MedPAC argues.
"Broadening the bundle of services for which MA plans are accountable would give plans the incentive to consider the needs of their members more broadly and to provide coordinated, efficient care to meet those needs," the Commission wrote.
Medicare Advantage
Besides extending hospice benefits, MedPAC didn't have too much to say about Medicare Advantage, although the other recommendation would have a number of implications for MA plans if enacted.
The Commission is calling on Congress to authorize CMS to set payments for employer group MA plans "in a manner more consistent with the determination of payments for comparable non-employer plans."
That would leave employer group MA plans being paid a bit less -- anywhere from $1 billion to $5 billion over five years -- and perhaps lead some to charge employers more or offer fewer benefits. Or employer group plans could move to plans in the non-employer market or fee-for-service Medicare, MedPAC wrote.
No recommendations were made for Medicare Part D.
MedPAC's next report is due in June. Read the whole March report here.