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MEDPAC: Hospitals Should Get 1% Payment Update in 2013

 |  By cclark@healthleadersmedia.com  
   March 16, 2012

The Medicare Payment Advisory Commission's (MEDPAC) submitted its payment policy report to Congress Thursday. Its recommendations cover hospital inpatient and outpatient services, and ambulatory surgical care among other services.

Rates for hospitals and their outpatient departments should increase 1% starting in 2013, the commission recommends, but E&M (evaluation and management) visits in hospital outpatient settings should be reimbursed the same as other outpatient settings or physicians' offices, and ambulatory surgical centers should get .5% more in 2013.

MEDPAC's other recommendations and their rationales in the 443-report are as follows:

Hospital outpatient and inpatient services
From 2009 to 2010, Medicare payments per fee-for-service beneficiary for inpatient and outpatient services in acute care hospitals grew by more than 3%, resulting in 4,800 hospitals being paid $153 billion for 10 million Medicare inpatient admissions and 166 million outpatient services.

Inpatient admissions, however, declined 1% per year and outpatient services grew 4% per year between 2004 and 2010, which signals a shift from inpatient to outpatient care.

And profit margins are improving, from a negative 7.1% in 2008 to negative 4.5% in 2010, in part because hospitals slowed their cost growth due to the recession, and because they changed documentation and coding that led to higher payments.

"Although the average hospital Medicare margin is negative, we find that Medicare payments more than covered the fully allocated costs of the median efficient hospital, which operated with a (positive) 4% Medicare margin in 2010," the report said.

The commission recommends that Congress increase payment rates for inpatient and outpatient care under the prospective payment system in 2013 by 1%. Additionally, for inpatient services, the Department of Health and Human Services should, beginning in 2013, use the difference between the increase under current law and the Commission's recommended update to gradually recover past overpayments.

Outpatient care in a hospital versus a physician's office
Fifteen-minute hospital outpatient department E&M visits should receive the same pay as E&M visits in a physician's office practice setting by reducing the amount paid to hospitals, with reductions phased in over three years. Disproportionate share hospitals would be limited to a 2% reduction.

"In 2011, Medicare paid 80% more for a 15-minute office visit in an OPD (hospital outpatient department) than in a freestanding physician office," the report said.

"This payment difference creates a financial incentive for hospitals to purchase freestanding physician offices and convert them to OPDs without changing their location or patient mix. Indeed, E&M clinic visits provided in OPDs increased 6.7% in 2010, potentially increasing Medicare program and beneficiary expenditures without any change in patient care."

Ambulatory surgical center services
For patients needing surgery that doesn't require an overnight stay, payment for services and access is adequate, the commission said, recommending a smaller .5% payment increase.

However facility growth slowed to 1.9% in 2010 and volume growth slowed to 1.6%, perhaps reflecting the sluggish economy and the fact that Medicare payments are 74% higher in OPDs, a "payment gap (that) may have influenced some ASC owners to sell their facilities to hospitals."

ASCs should have to submit data on quality care, as they are scheduled to do as of October, 2012. And ASCs should also have to submit data on the cost of services they provide to Medicare beneficiaries.

Outpatient dialysis services
The commission recommends a 1% increase in payment for dialysis services for 355,000 end stage renal disease Medicare beneficiaries.

The payment structure underwent a major change in 2011, when Medicare stopped paying separately for erythropoiesis-stimulating agents, "a drug class accounting for three-fourths of dialysis drug spending," the report said. "This decline is linked to clinical evidence showing that higher use of these drugs is associated iwth increased risk of cardiovascular events.

"It also may be linked to facilities' and physicians' modifying their prescribing patterns in anticipation of the new payment method...that no longer pays separately for these drugs."

Skilled nursing facility services
Congress should eliminate the market basket update and direct the HHS secretary to revise payment system for SNFs for 2013, and a 4% reduction in 2014 and subsequent reductions "until Medicare's payments are better aligned with providers' costs."

Also, payments to SNFs with "relatively high risk adjusted rates of rehospitalization during Medicare-covered stays, and expand the policy to "include a time period after discharge from the facility," such as 30 days.

The commission reasoned that increases in payments between 2009 and 2010 "outpaced increases in providers' costs, reflecting the continued concentration of days in the highest payment case-mix groups." The commission said that in 2010, the aggregate Medicare margin for freestanding SNFs was 18.5%.

Also, the commission said that avoidable rehospitalizations of SNF patients "increase Medicare's spending, expose beneficiaries to additional disruptive care transitions, and can result in hospital-acquired infections or other adverse health consequences."  Therefore, it recommends that payments should be reduced for those SNFs with relatively high rates of rehospitalization.

"Our recommendation would help counter the financial incentive SNFs have to rehospitalize beneficiaries. Because a readmission policy will penalize hospitals with high readmission rates beginning in October, 2012, a SNF rehospitalization policy would better align hospitals' and SNFs' incentives."

Home health care services
The commission repeats prior recommendations that payments for home health services be reduced beginning in 2013.  That's because the number of agencies continues to increase, with more than 420 new agencies in 2011, most new agencies are for profit and concentrated in a few states, the volume of services continues to rise, and a larger percentage of beneficiaries receive home health care. Also, payments "have consistently and substantially exceeded costs" with a margin in 2010 of 19.4%.

Inpatient rehabilitation facility services
Congress should eliminate the update for facilities in fiscal 2013.

Long-term care hospital services
Congress should eliminate the update to the payment rates for long-term care for fiscal 2013.

Hospice services
Hospice services should receive a .5% increase.

Medicare Part D
Modify the low-income subsidy for beneficiaries with incomes at or below 135% of poverty to encourage generic drug use in selected therapeutic classes. HHS should determine appropriate therapeutic classifications for the purposes of implementing this policy and review the classes at least every three years.

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