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MedPAC Considers Safety Net Funding, Site-Neutral Policies

The Medicare Payment Advisory Commission (MedPAC) on June 15 published its June report to Congress, covering several topics of interest to essential hospitals, including:

  • defining and supporting Medicare safety net providers;
  • aligning payments across outpatient settings;
  • streamlining and harmonizing Medicare alternative payment models (APMs); and
  • addressing high prices of Part B drugs.

The report also includes chapters on vulnerable Medicare beneficiaries’ access to care, improving the accuracy of Medicare Advantage payments, and segmentation in the stand-alone Part D market. While the report contains illustrative policies that policymakers could implement, it does not contain any recommendations for Congress on these topics, which could be included in future work.

Supporting Safety Net Providers

MedPAC presented a framework for identifying safety net providers and determining the need for new Medicare safety net funding to support them. The commission intends to apply this framework to all Medicare provider types.

MedPAC proposes to identify safety net providers within a sector as:

  • those that disproportionately serve low-income Medicare beneficiaries who are less profitable to care for than the average beneficiary; or
  • providers that serve uninsured patients or patients with public insurance that is not materially profitable.

Next, the framework calls for determining whether identified safety net providers are adequately supported and if additional Medicare funding is needed. MedPAC notes that new funding should only be allocated when current payment adjustments cannot be redesigned to adequately support safety net providers.

MedPAC applied this framework to hospitals by identifying hospitals it says have lower levels of profitability and are more likely to close. The commission provided a new measure for consideration — the safety net index (SNI) — which it states could be used to target safety net payments instead of the current Medicare disproportionate share hospital (DSH) formula.

The SNI would incorporate three metrics:

  • a hospital’s share of low-income Medicare beneficiaries, which includes Medicare beneficiaries dually eligible for full benefits from Medicaid, beneficiaries dually eligible for partial benefits from Medicaid, and Medicare beneficiaries who do not qualify for Medicaid in their state but receive the Part D low-income subsidy;
  • the share of the hospital’s revenue spent on uncompensated care; and
  • the hospital’s Medicare share.

Noting its belief that the current Medicare DSH formula does not appropriately target payments to hospitals with high Medicare volumes and treating disproportionate numbers of uninsured patients, MedPAC modeled a potential redistribution of current Medicare DSH payments using the SNI metric. The redistribution would target safety net payments to hospitals based on their SNI; 95 percent of hospitals would receive these payments, which would progressively increase as a hospital’s SNI value increases. MedPAC suggests the SNI-based payments, unlike current DSH payments, could be added to inpatient and outpatient payments. The chapter discusses hospital groups likely to benefit from this redistribution, including rural hospitals and those with high shares of low-income Medicare beneficiaries.

Aligning Payments across Outpatient Settings

MedPAC previously recommended that Medicare equalize payment rates across ambulatory settings, such as by reducing payments to hospital outpatient departments (HOPDs) to equal physician office payment rates.

In the chapter, the commission identified 57 ambulatory payment classifications (APCs) for which Medicare could align the HOPD and ambulatory surgical center (ASC) payment rates to be based on the freestanding physician office payment rate. MedPAC identified another 11 APCs for which Medicare could reduce the HOPD payment rate to align with the ASC payment rate, while maintaining the separate payment rate for freestanding physician offices.

Absent any legislative action, Medicare would have to implement this policy in a budget-neutral manner so that overall Medicare spending would remain constant. However, MedPAC also proposed an option to use the savings from the policy to dampen the loss to certain safety-net hospitals by implementing a temporary stop loss to protect hospitals serving high shares of low-income Medicare beneficiaries.

Streamlining and Harmonizing Medicare APMs

The report includes a chapter on approaches to reduce the number of Medicare APMs and provide a smaller number of accountable care organization tracks with varying degrees of financial risk designed around providers of different sizes. The chapter recommends implementation of a national episode-based payment model for certain types of proven clinical episodes (e.g., hip and knee replacements) with required participation by certain providers. MedPAC also stresses that promoting equity and reducing health disparities should be a priority for all Medicare APMs.

Addressing High Prices of Part B Drugs

Spending on Part B drugs, which are drugs administered in an outpatient setting, made up $40 billion in Medicare spending in 2020. Citing the increase in Part B drug spending, MedPAC examined options to control Part B drug spending, including:

  • addressing high launch prices of first-in-class drugs;
  • using reference pricing to encourage the use of cheaper therapeutic alternatives; and
  • adjusting the 6 percent average sales price add-on to a fixed dollar amount to remove purported incentives to use higher-cost drugs.

Contact Senior Director of Policy Erin O’Malley at eomalley@essentialhospitals.org or 202.585.0127 with questions.

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About the Author

Shahid Zaman is a senior policy analyst at America's Essential Hospitals.

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