MedPAC Recommends Small Inpatient Pay Increase for Hospitals

In its annual report to Congress, the Medicare Payment Advisory Commission (MedPAC) recommended on Monday that Congress give hospitals a fiscal 2011 payment update equal to the rate of change in the marketbasket index (currently projected at 2.4%) for inpatient and outpatient payments. However, there is a catch.

To restore budget neutrality at the federal level, MedPAC is proposing to reduce the inpatient update by up to 2% in 2011, 2012, and 2013—to recover earlier overpayments that resulted from changes in the use of new diagnosis-related groups in 2008. This could result in an inpatient update of just 0.4% in fiscal 2011.

The projections are developed from data showing hospitals had a steady year in 2008: Payments to the 3,500-plus hospitals participating in the inpatient prospective payment system grew by 3.7% (between 2007 and 2008), resulting in those hospitals receiving about $139 billion for inpatient and outpatient services.

At the same time, though, Medicare payments per discharge rose by 4.5%—compared to a 5.5% growth in costs per discharge. Roughly 3% of the growth was because of the payment rate updates, with the remainder due to more detailed documentation and coding. Overall, the Medicare margin declined from -6% to -7.2% between 2007 to 2008.

However, results varied by providers, as MedPAC noticed as it examined financial outcomes for those hospitals that performed consistently well on cost, mortality, and readmission measures. For those hospitals, Medicare payments covered the fully allocated costs of the median efficient hospital, according to MedPAC's Executive Director Mark Miller.

This number was not large, though: In the study of 2,718 hospitals with complete data between 2005-2007, 218 hospitals were found to be "relatively efficient" (after screening out 10% of hospitals in counties with the highest annual service use per Medicare patient and 10% with the lowest).

In other recommendations, MedPAC called for Congress:

• To update payments for physician services in 2011 to 1%. It also called for Congress to establish a budget-neutral payment adjustment for primary care services billed under the physician fee schedule and furnished by primary care physicians.
• To increase payments to ambulatory surgical centers by 0.6%, concurrent with requiring the centers to submit cost and quality data.
• To update the rates for hospice by the projected rate of increase in the hospital marketbasket rate minus an adjustment for productivity growth.
• To eliminate the update in payment rates for skilled nursing facilities for 2011.