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Instant Message from MedPAC: Don't Delay Improvements in Hospital Payment Accuracy

APRIL 21, 2006 -- Reacting swiftly to signals that Medicare might phase in key parts of a proposal to improve the accuracy of inpatient hospital payments, the Medicare Payment Advisory Commission wasted no time commenting on the controversial plan. Six days before the proposal was even set to be published in the Federal Register—and almost eight weeks before the June 12 deadline for comments—MedPAC sent a letter to federal officials saying the improvements should all begin this fall.

"The hospitals that treat cases that are now relatively underpaid should receive an increase in payments while hospitals treating cases that are currently overpaid should receive a decrease in payments," MedPAC Chairman Glenn Hackbarth said in the April 19 letter to Mark B. McClellan, administrator of the Centers for Medicare and Medicaid Services (CMS).

Hackbarth emphasized that CMS should not wait until fiscal 2008 to adjust hospital payments for the severity of illness of the patient involved, the time frame proposed by CMS. The commission is anxious to put an end to hospital "cherry picking"—or focusing on treatment of the healthiest patients to maximize profits—and says severity adjustments and other accuracy improvements should start Oct. 1, 2006, the start of fiscal 2007, not Oct. 1, 2007, the start of fiscal 2008, as CMS has proposed.

"Concerns about giving hospitals time to adapt to the changes may be better managed by implementing all" the payment changes recommended by MedPAC in 2007 "and then giving hospitals a transition period," Hackbarth advised.

"Clearly, current payment policies benefit hospitals that focus on less severely ill patients," he wrote.

In addition to severity adjustments, CMS has proposed basing inpatient rates on a hospital's actual costs rather than on what it charges for a patient with a particular type of diagnosis. Those changes would start Oct. 1 under the CMS proposal, a schedule MedPAC endorses.

But Hackbarth said, "it is important to correct for differences in patients' severity concurrently with the corrections for charging distortions."

In total, MedPAC has recommended four major changes to the inpatient payment method, all of which it says should start this fall. CMS has proposed making three of the four recommended changes, but not all at the same time.

Adhering to all four of the recommendations would change payments for most categories of hospitals, such as urban, rural, and major teaching facilities, by only 1 percent or 2 percent, the MedPAC letter said.

The exception would be physician-owned heart hospitals, whose payments would drop 9.6 percent, and doctor-owned orthopedic hospitals, whose payments would fall 8.2 percent, according to the letter. "These hospitals have specialized in types of patients for which Medicare tends to overpay and should receive a significant reduction in their inpatient payments," Hackbarth said.

MedPAC said it would comment more extensively on the inpatient payment proposal "at a later date," adding that it wanted to provide some "initial reactions."

The American Hospital Association has voiced concerns about even the CMS timetable for implementation.

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