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MedPAC Report Tackles Premium Support, Bundling, Readmissions, Site-Neutral Payment

By John Reichard, CQ HealthBeat Editor

June 14, 2013 -- This year's version of the Medicare Payment Advisory Committee's June report to Congress, released last week, addresses a variety of problems in the program ranging from overall spending growth to wildly varying levels of outpatient therapy spending in different parts of the country.

It's far from the mother lode of potential payment offsets that more often is found in MedPAC's other major report to Congress each March. But it reflects effort in a variety of areas to identify and eliminate inefficient spending in the program.

Among the topics is one that would have gotten far more attention had Mitt Romney been elected president: premium support, which Republicans advocated to trim overall Medicare spending growth. MedPAC doesn't call it that, using instead the term "competitively determined plan contributions," or CPC.

It's used to describe "a federal contribution toward the coverage of the Medicare benefit, based on the cost of competing options for the coverage, including those offered by private plans and by the traditional Medicare fee for service program," the report states.

Such a system is no simple way to produce savings, MedPAC says. "Competing private plans ... do not necessarily lower cost to the Medicare program if the rules defining how they compete and how they are paid do not encourage them to do so," according to the report.
"Whether a CPC approach can lower overall Medicare spending will depend on the characteristics of each market, the specific design of the model, and how different components of the model interact," the report says.

Use Most Cost-Effective Setting

A big focus of MedPAC's work is "site-neutral payment." Medicare's payment rates often vary for the same or similar ambulatory services provided to similar patients in different settings, such as physicians' offices and hospital outpatient departments, it notes. "Such variations raise questions about how Medicare should pay for the same service when it is delivered in different settings," it adds.

If the same service can be safely provided in different settings, a prudent purchaser should not pay more for that service in one setting than in another, commissioners say. "Payment variations across settings may encourage arrangements among providers that result in care being provided in higher paid settings, thereby increasing total Medicare spending and beneficiary cost sharing."

In general, the panel advises Medicare to base its payment rates on the resources needed to treat patients in the most efficient setting while adjusting for differences in how sick the patients are that are taken care of in different settings.

In its March report, MedPAC recommended that Medicare payment rates should be equal whether a doctor evaluates or manages a patient's condition in an outpatient department or in a freestanding office. In the new June report, the commission identifies 66 groups of services provided in outpatient departments that are also frequently performed in physician's offices. "Changing OPD payment rates for these services to reduce payment differences between settings would reduce program spending and beneficiary cost sharing by $900 million in one year," the report says.

"We also identified 12 groups of services that are commonly performed in ambulatory surgical centers for which the OPD payment rates could be reduced to the ASC level. This policy would reduce Medicare program spending and beneficiary cost sharing by about $600 million per year," the commission counsels.

But the panel expressed worry about the impact of these policies on hospitals that treat many poor patients. Those patients are more likely to use a hospital outpatient department as their usual source of care. Because large reductions in Medicare revenue for the facilities could cut access to physician services for these patients, the report suggests a possible "stop-loss policy" that would limit the hospitals' loss of Medicare revenue.

Bundling Could Save Money

The report notes that Medicare rates vary widely for the care beneficiaries can receive following a hospital stay in the four post-acute care settings: skilled nursing facilities, home health care, inpatient rehabilitation hospitals, and long-term care hospitals. "Nationwide, use rates for post acute services vary widely for reasons not explained by differences in beneficiaries' health status."

As a possible remedy, reimbursement for a number of services could be bundled into one payment. The approach would entail having hospitals and post-acute care providers coordinating the treatment of patients. That way, the panel says, "providers would have an incentive to coordinate care and provide only clinically necessary services rather than furnishing more services to generate revenue."

The report illustrates a bundled payment approach for post-acute care in which CMS would compare "actual average spending for a condition with a benchmark, return some portion of payments if average spending is below the benchmark, and put providers at some risk for spending above the benchmark."

The report also discusses possible refinements to Medicare's hospital readmissions policy. Congress enacted a readmissions reduction program in 2010. It includes a penalty that reduces Medicare payments in 2013 to hospitals that had above-average readmission rates from July 2008 through June 2011. One problem with the policy is that hospitals that treat many poor patients are more likely to have readmissions and see payments cut as a result.

A possible refinement, the report says, would be to "evaluate a hospital's readmission rate against rates for a group of peer hospitals with a similar share of poor Medicare beneficiaries as a way to adjust readmission penalties for socioeconomic status."

The report also discusses possible adjustments to hospice payments, outpatient therapy reimbursement, and payments for ambulance services.

"Given the magnitude of hospice spending on long-stay patients, who are more profitable under the current payment system than other patients, it is important that an initial step toward payment reform be taken as soon as possible," the panel advises.

Therapy Changes Recommended.

The report says that Medicare spending on outpatient therapy in the highest spending areas of the country "is five times more than that in the lowest spending areas of the country, even after controlling for differences in patients' health status." It makes several recommendations to decrease inappropriate use of outpatient therapy services.

It also makes recommendations to assure that Medicare pays for "clinically appropriate" use of ambulances and calls for ending a floor on a payment adjustment.

The report endorses a geographic adjustment to physician payments. The "cost of living varies geographically," and Medicare payments to doctors should reflect that, it says. But the current system is flawed because of a lack of quality data on the earnings of physicians and other professions, the report says. "The adjustment should reflect geographic differences in labor costs per unit of output across markets for physicians and other health professionals," it says. It also calls for ending a floor on such geographic adjustments for payments that keep them from going below a certain level.

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