In June, the Medicare Payment Advisory Commission (MedPAC) released a report to Congress. MedPAC is a 17-member independent congressional agency established in 1997 to advise Congress on Medicare issues, which it does primarily through reports issued in March and June each year. Congress is not obligated to accept MedPAC’s recommendations, but the reports often shape congressional debates and actions. This article focuses on five of the subject areas discussed in the latest report.

Medicare Payments Across Ambulatory Settings

MedPAC expressed concern that Medicare payment rates vary widely for the same ambulatory (outpatient) services in different medical settings, such as physicians’ offices, hospital outpatient departments (OPDs) and ambulatory surgical centers (ASCs). This anomaly has caused many hospitals and physicians, for example, to join forces to take advantage of it. It may not last long. “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,” the report stated.

MedPAC did not recommend specific payment changes immediately. However, the report identified 66 groups of services for which payment rates could be the same or similar, regardless of whether the services were performed in a freestanding office or OPD. MedPAC identified services where payment should be equal between these settings based on the following factors: (a) they were frequently performed in freestanding physicians’ offices, indicating that treatment there was safe and that the physician payments were high enough to ensure access to care; (b) the payment rate includes a similar set of services; (c) the services were not usually combined with an emergency department visit when furnished in an OPD; (d) the patient severity was the same in OPDs and physician offices; and (e) the services were not covered by 90-day surgical CPT codes (major procedures with a 90-day postoperative period included in the original payment made under the fee schedule). For services where the payment rate included a higher level of services but met all of the other criteria, MedPAC recommended that payments reflect the cost of the additional services but otherwise be equal between settings.

The report highlighted the potential savings of reducing the payment rates for these services to the physician office rate. Medicare program spending and beneficiary cost-sharing would decrease by $900 million in one year, the report said. Average OPD revenue would fall by 2.7 percent.

MedPAC also identified 12 ambulatory surgical procedures for which payments could be the same in both ASCs and OPDs. Such a change could reduce Medicare program spending and beneficiary cost-sharing by $590 million per year, the report said. Average OPD revenue would fall by 1.7 percent.

In order to ensure that hospitals can continue to serve low-income patients, MedPAC suggested a stop-loss policy to cap revenue losses for hospitals that serve a higher percentage of low-income patients. For these hospitals, Medicare revenue losses would be capped at 2 percent.

Bundling Payments for Post-Acute Care

MedPAC believes bundled payments “have the potential to improve care coordination and quality of services, rationalize service use, and lower potentially avoidable readmissions.” Such an approach would provide one payment or a benchmark price for all services furnished for a defined time period, such as 30 or 90 days after a triggering event. This is in contrast to the current fee-for-service (FFS) method, which has been criticized for encouraging increased volume of services.

MedPAC does not recommend a specific plan on bundled payments for post-acute care (PAC) in the June report. Instead, the commission examined different models and discussed the advantages and disadvantages of each. For example, one model would bundle together the inpatient stay, PAC and readmissions. Another would bundle only PAC, or PAC and readmissions.

Geographic Adjustments of Payment

The report acknowledges the controversy over such geographic payment variations, which are intended to adjust payments for costs beyond providers’ control. The commission finds that the current methods are flawed and should be replaced. However, MedPAC concludes that some geographic adjustments of fee schedule payments are necessary because of varied costs of living and earnings. Because there are no data to establish a new index immediately, the commission recommends continuing the current policy and allowing the temporary floor to expire.

The geographic practice cost index (GPCI) is intended to adjust provider payments to account for costs that are beyond their control. The current GPCI is composed of three measures: the work GPCI, the practice expense GPCI and the professional liability insurance GPCI. The MedPAC report focuses on the first measure, the geographic adjustment for work.

Currently, the work GPCI is calculated by using data from different localities on earnings in seven reference occupational categories. MedPAC recommends that instead, the work GPCI payments be adjusted based on differences in labor markets for physicians and other health professionals. In addition, MedPAC recommends continuing the current policy of limiting the GPCI adjustment to one-quarter of the full impact.

The temporary floor prevents negative work GPCI adjustments in areas where the costs are below the national average. MedPAC recommends allowing this floor to expire.

Outpatient Therapy Caps

MedPAC provides several recommendations to lower the cost of Medicare’s outpatient therapy benefit, which covers physical therapy, occupational therapy and speech-language pathology. In 2011, Medicare spent $5.7 billion on outpatient therapy. In 2012, Congress mandated that MedPAC study these services.

Currently, the certification period for therapy plans of care is 90 days. MedPAC recommends reducing this period to 45 days, since the national average therapy episode is 33 days. In addition, MedPAC recommends that the Centers for Medicare and Medicaid Services develop national guidelines for therapy services, implement payment edits that target “implausible” amounts of therapy, and target high-use geographic areas and aberrant providers.

Currently, there are two annual spending caps on outpatient therapy services. The first is for physical therapy and speech-language pathology combined, and the second is for occupational therapy services. Each cap limits annual spending to $1,900, but MedPAC noted that “a broad exceptions process allows providers to deliver services above either spending cap relatively easily, limiting the effectiveness of the caps.”

MedPAC recommends reducing each cap to $1,270 and including services provided in hospital outpatient departments in these caps. The report states that based on historical spending trends, two-thirds of outpatient therapy users would not exceed caps of $1,270. However, a manual review process would allow beneficiaries to exceed these limits if necessary. MedPAC recommends implementing a more efficient review process for such requests, which would include the following changes: allowing requests for medical reviews to be submitted electronically, giving providers immediate confirmation that their requests have been received, and completing reviews within 10 days.

The report also recommends increasing the multiple procedure payment reduction (MPPR) to 50 percent for therapy services. This reduction would apply to all services furnished by the same provider to the same patient on the same day, even if furnished in different sessions.

Finally, MedPAC recommends prohibiting the use of V codes, which describe the type of therapy rather than the patient’s condition, as the principal diagnosis on outpatient therapy claims. The commission would also like to see an assessment tool developed that would collect information on the functional status of outpatient therapy patients.

Changes to Readmission Penalties

The report makes several suggestions for hospital readmissions penalties. First, MedPAC suggests using an all-condition readmission measure to increase the number of observations and reduce variation. The report states that this would also attenuate the negative correlation between mortality rates and readmission rates for some conditions, such as heart failure. In the future, MedPAC would like to pursue a joint readmission-mortality measure.

Second, MedPAC suggests replacing the current penalty with a fixed readmission target, which would allow penalties to decrease when overall industry performance improves on readmissions.

Third, MedPAC would like to see hospitals’ readmission rates evaluated against rates of hospitals with similar patient profiles, since hospitals with a high share of low-income patients tend to have higher readmission rates. •