MedPAC’s Draft Recommendations for Hospital And Physicians FY 2010 Payments

The Medicare Payment Advisory Commission (MedPAC) met on Thursday, December 4, 2009 to discuss update recommendations for hospital outpatient and acute inpatient services for fiscal year (FY) 2010. Data presented by Commission staff showed that overall, most payment adequacy indictors for hospital services are positive.

In 2007, Medicare margins were declining (and are expected to continue to do so). An examination of hospital efficiency identified a set of hospitals that consistently maintained low cost and low mortality, while breaking even on serving Medicare patients.

As a starting point, the initial draft recommendation (MedPAC will vote on these at the January 2009 meeting) calls for a full “market basket” payment update for hospitals services in 2010 as follows:

Draft Recommendation 1
“The Congress should increase payment rates for the acute inpatient and outpatient prospective payment systems in 2010 by the projected rate of increase in the hospital market basket, concurrent with implementation of a quality incentive payment program.”

In addition to making recommendations on the level of Medicare payments affecting hospitals, the Commission also proposed a recommendation on the distribution of payments. The second draft recommendation for hospital services calls for reducing the percentage of the “indirect medical education” (IME) add-on payment issued to teaching hospitals. The chairman proposed to include the same recommendation included in last year’s report for reducing the IME adjustment and use the funds from this to support a quality incentive program.

Draft Recommendation 2
“The Congress should reduce the indirect medical education adjustment in 2010 by one percentage point to 4.5 percent per 10 percent increment in the resident-to-bed ratio. The funds obtained by reducing the IME adjustment should be used to fund a quality incentive payment program.”

In terms of spending implications, since this recommendation is intended to be budget neutral, there would be no spending implications and it would narrow the disparity in Medicare margins while making funds available to reward high-performing hospitals, potentially improving quality for beneficiaries.

Updating Payments For Physician Services

Commission staff also presented an analysis of payment adequacy for physician services and expected cost changes that would provide a 1.1 percent increase in Medicare payments to physicians in 2010.

Draft Recommendation 1
“The Congress should update payments for physician services in 2010 by the projected change in input prices less the Commission’s expectation for productivity growth.”

Discussion also focused on improving payment accuracy for MRI and CT services. Increasing the equipment use assumption for MRI and CT machines in a budget neutral manner would decrease practice expense RVUs for these specific services and increase RVUs for all other physician services.

Draft Recommendation 2
“The Congress should direct the Secretary to increase the equipment use assumption used to calculate practice expense RVUs for MRI and CT machines from 50 percent to 90 percent. This change should be made in a budget neutral manner.”

It is projected that spending implications for both recommendations one and two would increase spending relative to current law because under existing law, the SGR calls for a 21 percent decrease in 2010. Recommendation two would shift RVUs from MRI and CT codes to other services. Both recommendations would increase beneficiary cost-sharing and maintain the current supply of and access to physician services.

Ambulatory Surgical Centers

Commissioners also discussed payment trends in ambulatory surgical centers (ASC), noting that 2010 is the first year since 2003 that a positive update to ASC payment rates is allowed by law. Commissioners were asked to consider three options for an ASC update and cost reporting requirements in 2010. The first options would be an update equal to the CPI-U. The second option would be the CPI-U minus the productivity adjustment of 1.3 percent, and the third option would simply be a zero update.

As noted, the Commission will not formally vote on the draft recommendations until the January 2009 meeting.