MedPAC approves recommendations for hospital update, site-neutral payments for outpatient departments Last Updated: July 9, 2014
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The Medicare Payment Advisory Commission (MedPAC) approved a final recommendation that would give hospitals a net payment update of -0.45 percent in FY15, based on a market-basket update of 3.25 percent before the effect of other policies on January 16. MedPAC also recommends equalizing payments between physician and hospital settings for certain outpatient tests and redistributing payments from long-term care hospitals (LTCHs) to acute-care hospitals for some patients over three years.

MedPAC staff reported that overall Medicare margins were -5.4 percent in FY12, about the same as the previous year, and will dip to a projected -6.0 percent in FY14. However, the effect of the budget sequester would lower margins by almost another 2 percent.

Recommended update

MedPAC’s recommended update would start with a market basket increase of 3.25 percent after adjustments for productivity and the Affordable Care Act (ACA) reduction, but include a cut of -0.6 percent for the APC equalization policy and add 0.4 percent through the LTCH/inpatient payment redistribution to other expected payment changes noted above for a net negative update of -0.45 percent. The MedPAC update also does not include the impact of sequestration or the potential reduction of -0.6 percent if Congress agrees with a previous MedPAC recommendation to equalize payments for evaluation & management (E&M) codes between physician offices and hospital-based clinics.

Site-neutral payment recommendation

MedPAC has recently focused on the continued shift in Medicare services from inpatient to outpatient. According to MedPAC, between 2006 and 2012, inpatient volume fell by almost 13 percent while outpatient volume rose 23 percent. The inpatient decline in 2011-2012 amounted to 450,000 patients, staff said, and occurred across Medicare age groups and regions. A similar decline was observed for private payers. With respect to outpatient care, observation visits nearly doubled from 28 visits to 53 visits per 1,000 beneficiaries over the period, although that was more than offset by the decline in inpatient discharges per 1,000 beneficiaries.

The commission’s recommendation would equalize payments between physician and hospital settings for 24 Ambulatory Payment Classifications (APCs) and would narrow payment differences for 42 APCs. The 66 APCs were listed in the June Report to the Congress and include many cardiology and imaging procedures. MedPAC staff said the change, if adopted, would reduce hospital spending and beneficiary costs by $1.1 billion a year, with rural hospitals and those with fewer than 100 beds most affected.

LTCH recommendation

The LTCH/IPPS change would maintain separate LTCH payments but pay higher rates only for chronically critically ill (CCI) patients who have a minimum eight-day stay in a hospital intensive care unit or required prolonged mechanical ventilation services during a preceding acute care hospital admission.

Non-CCI cases would be paid at IPPS rates and savings would be transferred to the IPPS outlier pool to increase payments for IPPS CCI cases over a three-year transition.