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MedPAC Debates Controversial Hospital Proposal

By Rebecca Adams, CQ HealthBeat Associate Editor

November 2, 2112 -- The Medicare Payment Advisory Commission on Friday appeared divided over the idea of whether to reduce payments to hospital outpatient departments so that the rates better reflect the fees that independent physicians receive for similar services.

The volume of the concerns that commissioners expressed raised questions about whether the panel would be ready to vote next month on a recommendation for its next report to Congress in March.

Commissioners seemed to have a range of opinions on the issue. A few advocated for a more aggressive move toward equalizing payments between outpatient departments and physicians' offices than what the commission has discussed up to now. Others voiced fears that hospitals would suffer too much financially because of the potential reductions in services to vulnerable populations of patients.

The panel also discussed the controversial issue at last month's meeting. In March, MedPAC recommended that rates for evaluation and management services paid to outpatient departments be lowered so they are equal to payments to doctor's offices. While Congress hasn't yet acted on that idea, it is drawing notice from lawmakers who are actively searching for Medicare savings to pay for a long list of issues this year, including a so-called doc fix that would stave off a nearly 27 percent payment cut for Medicare physicians in January.

Now MedPAC is considering whether to add recommendations to set equal or similar payments for more categories of services, beyond just evaluation and management, which refers to a doctor visit where the location of the visit doesn't affect the care.

The issue is cropping up as more hospitals buy up physician practices. When the hospital owns and operates a physician practice, even if it's not physically located in the hospital, the Medicare system allows an extra reimbursement that can boost payments much higher in hospital settings for similar procedures done in a doctor's office. 

One statistic that received a lot of attention was a staff estimate that among the 100 hospitals that would be most affected by policy changes, the average loss would be 7.7 percent of Medicare revenues. Hospital lobbyists in the audience said that would be a major blow to hospitals that are already expecting some reductions called for in the 2010 health care overhaul (PL 111-148, PL 111-152). The average loss to all hospitals was a less dramatic 1.2 percent reduction.

Under this recommendation, major teaching hospitals could be disproportionately affected, according to a staff analysis.

That caused commissioner Alice Coombs of the Milton Hospital and South Shore Hospital in South Weymouth, Mass., to wonder whether some vulnerable patients might lose access to care, particularly at inner city teaching hospitals that provide a safety net for the community. She also said that there may be legitimate safety-related reasons why some patients get treatment in an outpatient hospital setting rather than a clinic.

"The issues you're raising are valid ones that we're trying to wrestle with," responded MedPAC Chairman Glenn Hackbarth.

One point raised both by commissioners and hospital lobbyists during the public comment period was that hospitals should be paid more because they provide other services not available in a doctor's office, such as the ability to handle a large influx of patients during an emergency.

But other commissioners, such as Vice Chair Michael Chernew of the Harvard Medical School, said that it is not a good idea to indirectly subsidize those services and in the process inflate prices. It would be better to target funding in a way that directly achieves desired outcomes.

Some commissioners wanted a more ambitious approach than MedPAC has considered up to now.

"I would argue it hasn't gone far enough," said Jack Hoadley of the Georgetown University Health Policy Institute.

Commissioner Scott Armstrong of the Group Health Cooperative in Seattle noted that the revenues for outpatient departments has increased in recent years.

"While we'd be taking revenues out, those are brand new revenues," he said.

Hospital officials stood up during the comment period to criticize the plan. They noted that in 2010, the year that the commission used in its March analysis, hospital inpatient and outpatient margins were both negative and that the equalization proposals would drive hospital revenues lower. They asked the staff to conduct additional analyses and release additional details, such as the identities of the hospitals that would be affected, so that they could provide more feedback. They asked for more protections that would prevent losses from compromising care.

Chantal Worzala, the American Hospital Association's director of policy, said that the devastation caused by hurricane Sandy was evidence of the need to provide sufficient resources to hospitals. She noted that hospitals accepted a large number of patients who had to be evacuated out of skilled nursing facilities.

"We as a society really need this kind of response capacity," Worzala said.

She said that funding for hospital preparedness has declined by 12.5 percent between fiscal years 2010 and 2012, and "come nowhere close to the cost of actually responding to a disaster."

Special Needs Recommendations

Earlier in the day the commission considered four draft recommendations affecting special needs plans (SNPs), which are Medicare Advantage health plans that are open only to people with certain health needs. Plans known as D-SNPs are open to people who are eligible both for Medicare and Medicaid. C-SNPs are available for patients with chronic conditions. I-SNPs are for institutionalized people or patients in the community who need intense care.

The authority for the plans to operate in these particularly enrollment categories expires at the end of 2013. If a plan's executives wanted to fold these plans into their larger Medicare Advantage plan for the general Medicare population, they could do so.

The suggestions that MedPAC is considering include a plan to permanently reauthorize the institutional special needs plans. Another recommendation is to permanently reauthorize dual-eligible special needs plans (D-SNPs) if they assume clinical and financial responsibility for integrated Medicare and Medicaid benefits. The authority for D-SNPs that did not take on that responsibility would expire, under that proposal.

MedPAC also is considering aligning the appeals processes for Medicare and Medicaid for the D-SNPs that accept clinical and financial responsibility for the benefits in both programs. The panel would recommend that Congress direct Health and Human Services officials to tell the D-SNPs to market the Medicare and Medicaid benefits that they cover as a combined benefit package.

In addition, MedPAC is considering a recommendation to allow the authority for the SNPs for people with chronic conditions to expire, a proposal that later drew concerned comments from the audience. The proposal would direct HHS officials to act within three years to permit Medicare Advantage plans to enhance their benefit designs so that coverage can vary based on the medical needs of people with specific chronic or disabling conditions. The recommendation would allow current C-SNPs "to continue operating during the transition period as the [HHS] secretary develops standards but impose a moratorium on new enrollment in those plans" as of Jan. 1, 2014.

The idea behind allowing C-SNPs to expire is that many beneficiaries have at least one chronic condition.

Armstrong of the Group Health Cooperative in Seattle said his company had a C-SNP but it never grew to more than 1500 patients so the company plans to stop offering it. Armstrong said he likes the idea of folding the role that the C-SNP plans are intended to play into the overall Medicare Advantage program because the entire program is going to have to care for the needs of people with chronic needs.

Some other commissioners agreed with Armstrong.

Commissioner Thomas Dean of Horizon Health Care in South Dakota said that narrowing the pool of beneficiaries to those with chronic conditions could be detrimental and that chronic care services should be incorporated into the entire Medicare Advantage program.

"For the most part, I think a specific program focused quote-unquote on "chronic disease" is probably not appropriate," Dean said.

MedPAC staff said they are working with officials from the Congressional Budget Office to get a better sense of the fiscal impact.

But Tom Myers, the general counsel and chief of public affairs at the AIDS Healthcare Foundation, said that throwing out the C-SNPs is unnecessary. He said that there is no incentive for a regular Medicare Advantage plan to set up the type of networks and services that HIV-AIDS patients need. He recommended that the panel more closely examine the populations served and consider which groups facing different diseases might benefit from keeping the C-SNP program.

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