MedPAC's Report Recommends Pay Changes for Healthcare Services

Hospital inpatient and outpatient services should get 1.5% more in 2025 Medicare payments, skilled nursing homes should receive 3% less, base payment rates for home health agencies should drop by 7%, and physicians should receive what current law allows plus 50% of the projected increase in the Medicare Economic Index, the Medicare Payment Advisory Commission (MedPAC) said in its annual March report to Congress.

In two of the report’s 15 chapters, which took up 20% of the 561-page report, the commission addressed major problems with private Medicare Advantage (MA) plan quality and payments, which have been frequent topics of regular meetings. Commissioners reiterated that “a major overhaul of MA policies is urgently needed” to address lack of quality and overpayments compared with fee-for-service (FFS) plans.

Other issues include the need for Medicare to change policies that disadvantage FFS beneficiaries who don’t want to use MA provider networks or undergo prior authorization. The commission advised Congress to push harder for information that is lacking about the value of MA plans’ “extra benefits.”

“The lack of information about the use and value of many MA supplemental benefits prevents meaningful oversight of the program such that we cannot ensure that enrollees are getting value from those benefits,” the report noted.

The March report is one of two that MedPAC is required to send to Congress each year and is mandated to review payment policies, efficiency of services, and access and quality for beneficiaries. The June report analyzes Medicare issues more broadly and has more flexibility in discussing topics affecting the programs, MedPAC spokesperson Stephanie Cameron said in an email.

In a press briefing prior to the report’s release Friday, MedPAC executive director Paul Masi noted the report’s estimate that Medicare will pay MA plans $455 billion this year, not including sums paid for prescription drugs, but which include an estimated $2,142 per beneficiary of extra benefits. The amount to be paid to MA plans this year is 22%, or $83 billion more than what Medicare would spend if those beneficiaries were enrolled in FFS.

That’s due, the report said, to the plans’ practice of assigning 18% to 20% higher risk scores and coding more rigorously to diagnose more conditions among their enrollees, which results in higher monthly capitated payments to MA plans.

According to the report, those higher risk scores are projected to result in $50 billion more in payments to MA plans in 2024.

Masi noted that “the benefits from MA’s higher payments relative to fee for service are subsidized by the taxpayers and beneficiaries who fund Medicare, [putting] an increased fiscal strain on the program. The commission estimates that Part B premiums will be about $13 billion higher in 2024 because of that higher MA spending.”

Added to the problem is the fact that MA enrollees have lower spending, also called “favorable selection,” which generally means they are healthier than their counterparts in FFS. Beneficiaries enroll in MA because of perception of lower costs when they are relatively healthy.

Those MA plan practices generate higher capitated monthly payments for those private companies. “The commission has long been concerned about the ability of the current MA quality bonus program to help beneficiaries meaningfully differentiate across plans and between MA and FFS,” the report noted, adding that it “contends that the program does not effectively promote high-quality care and has several other flaws.”

“Further, the commission is concerned that policies leading to higher MA payments also do not adequately address issues that distort the nature of plan competition,” the report continued.

Mike Tuffin, president and CEO of AHIP (formerly America’s Health Insurance Plans), which represents MA plans, was not pleased with the MedPAC’s conclusions and estimates of overpayment.

“These estimates double down on speculative assumptions about Medicare Advantage and overlook basic facts about who Medicare Advantage serves and the value the program provides,” he wrote in a press release. “At a time when more than 33 million Medicare Advantage beneficiaries are counting on stability in their costs and benefits, policymakers should seek to strengthen and build on the value of the program — not undermine it.”

The commission’s four standing recommendations to Congress, dating as far back as March 2016, which have not been implemented, are:

Have HHS develop a risk-adjustment model that uses diagnostic data, excluding diagnoses from health risk assessmentsImprove MA plans reporting of encounter data, withholding refunds to those that don’t meet thresholdsReplace the quality bonus program with a score based on population-based measures that evaluates and rewards quality at a local market levelReplace the current MA benchmarking policy — the way MA plans are paid base rates — with a new policy that uses geographic markets as payment areas

Asked by MedPage Today why Congress has failed to implement those recommendations, Masi declined to say. But this year’s report includes “additional information around the performance of the MA payment system, and underlying concerns we’ve had for many years now with how the payment system is performing,” he said.

The report called the MA program “robust,” and noted that the average beneficiary has a choice among 43 plans, and that the commission “strongly supports including private plans in the Medicare program” because they allow beneficiaries choice.

The report made special note of “tragic effects on beneficiaries and damaging impacts on the nation’s healthcare workforce” due to burnout and risks to their own health and safety during the COVID-19 pandemic, factors that have affected funding and made it difficult to interpret some payment adequacy indicators.

As for other recommendations, the report noted that in the last 2 years, clinician payment remained positive or improved, but said “clinicians’ input costs are estimated to have grown faster than the historical trend.” Because physicians don’t submit cost reports, the commission can’t compute profit margins.

Under current policy, physician pay is expected to decline in 2025 due to the expiration of a 1.25% increase for 2024 alone. “Given recent high inflation, cost increases could be difficult for clinicians to continue to absorb,” the report said, although from many indicators the commission looked at, it appears that payments are currently adequate.

The commission recommended that physicians in 2025 be paid currently allowed rates, plus 1.5% of the projected increase in the Medicare Economic Index.

American Medical Association President Jesse Ehrenfeld, MD, MPH, said in a press release that MedPAC’s call for the increase is “desperately needed,” and is an acknowledgement that current payment is inadequate. It “comes days after Congress allowed an approximate 2% cut in Medicare payments to become law,” and as physicians suffer cyberattacks, years of Medicare cuts, COVID-19, and inflation that has “weakened physician practices’ ability to absorb all these shocks.”

Looking at ambulatory surgical center (ASC) services, the supply of mostly for-profit ASCs continued to grow, with some 6,100 centers treating 3.3 million FFS beneficiaries in 2022. Growth is attributed to an increasing number of services that can be moved safely from inpatient to outpatient, and lower costs compared with in-hospital surgeries. The report reiterated its recommendation that ASCs submit cost data.

The commission also recommended that Congress eliminate the update to hospice base payment rates for 2025 because of indicators that the number of facilities has increased and beneficiaries’ access was good.

Finally, the commission determined that with 7,800 facilities providing dialysis to 290,000 beneficiaries in 2022 at a cost of $8.8 billion, payment is currently adequate because facilities have the capacity to meet demand.