MedPAC launches plan for new payment system

The Medicare Payment Advisory Commission (MedPAC) has proposed a new system to streamline post-acute care (PAC) provider payments for services to Medicare patients.

Outlined in MedPAC’s June report to Congress, the proposal would establish uniform payments for specific episodes of care, regardless of settings, resulting in higher payments for some entities and lower payments for others. Currently, Medicare pays for PAC services using separate prospective payment systems (PPSs) for each setting, with two of those settings "encouraging the provision of therapy services over medically complex care."

The Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act) requires MedPAC to develop a PPS spanning four PAC settings and submit a report to Congress recommending features of a unified, cross-setting PAC payment system and, to the extent feasible, moving to such a system.

The law also requires the U.S. Department of Health and Human Services (HHS) to collect and analyze common patient assessment information and submit a report to Congress recommending a PAC PPS. That report is expected sometime in 2022 and is to be followed by another report outlining the details of a prototype design for a PAC PPS, due in 2023.

"Our work confirms that a PAC PPS is feasible and within reach," the commission’s report states. "Given the long-standing problems with Medicare payment for PAC, moving to a unified PAC PPS is highly desirable."

A uniform PPS that bases payments on patients’ characteristics will focus providers on the care needs of beneficiaries while reducing spending on unnecessary services.

However, MedPAC says, “a truly reformed PAC payment system will ultimately need to embrace episode-based payments to focus providers on the care needs and outcomes of a patient throughout the episode of care and to dampen the incentives to furnish unnecessary services.”

Payment Impact

MedPAC estimates a PAC PPS would redistribute payments among types of stays, such as from physical rehabilitation to medically complex care, and from higher cost settings and providers to those that cost less. As a result, profitability would be more uniform across different types of stays or patients, so providers would have less financial incentive to admit certain types of patients over others.

Also, because payment would not be based in part on the number of services provided, there would be less incentive for providers to provide unnecessary services. “Our estimates should be thought of as indicating the direction that the redistribution of payments would take and the relative cost values, but should not be thought of as point estimates,” MedPAC suggests.

The commission speculates PAC providers would be “responsive” to the policy changes. “Specifically, we would expect high-cost providers to lower their costs to match the PAC PPS payments and all providers to change their coding practices to record patient diagnoses more completely,” MedPAC says. “In addition, we would expect providers to be less likely to engage in financially motivated selection of certain types of patients over others.”

MedPAC says payments in 2013 exceeded the cost of stays by 19 percent, so payment rates for PAC need to come down, with a transition policy considering when and how large the adjustments should be. During the transition period, providers would be paid a blend of “old” and “new” rates would give providers time to adjust costs. A high-cost “outlier policy” that would be tightened over time would help providers adapt while protecting patients’ access to care.

In addition, MedPAC says providers should be given more flexibility to offer services that span the PAC continuum of care and a cost-sharing requirement should be considered when beneficiaries use any PAC service. Under this policy, beneficiaries could select a provider and setting based on the care they expect rather than on the financial implications of selecting one setting over another.

In the longer term, MedPAC says providers need to have greater accountability for spending and quality over an episode of care to dampen incentives for unnecessary stays or services and to encourage care coordination. Aligning payments with the cost of stays across PAC settings would be a step towards achieving this, the report said.

MedPAC emphasizes that until a PAC PPS is implemented, the Centers for Medicare & Medicaid Services (CMS) and Congress should move forward with previous recommendations to improve the accuracy and equity of payments within each setting.

"Because the current time line for implementing a PAC PPS is years away, these refinements to the individual payment systems would better align program payments to providers’ costs, eliminate known biases in the payment systems, and help ensure access for beneficiaries with varying care needs," MedPAC says.

Industry reaction

The American Health Care Association (AHCA) appeared lukewarm to MedPAC’s recommendations on Medicare payments to skilled nursing facilities (SNF).

"Nothing has fundamentally changed since MedPAC issued its prior SNF payment recommendations," says Mike Cheek, AHCA senior vice president, finance policy and legal affairs to Long-Term Living. “The skilled nursing sector continues to struggle in an economic environment which is changing rapidly with the proliferation of CMS shifts away from traditional fee-for-service (FFS) and the rapid growth in Medicare Advantage (MA) plans’ penetration rates." Cheek says few MA plans pay FFS rates.

"Our combined Medicare/Medicaid operating margins remain stagnant below 2 percent with many providers below the line—a finding even MedPAC’s own research reveals," Cheek added. "Yet even as fiscal pictures remain the same, demands on the post-acute profession continue to grow as the boomers age. Equal to the task, our members are responding with noteworthy achievements in quality, particularly in the areas of reducing hospital readmissions as well as lowering the use of off-label antipsychotic medications."

Cheek says AHCA appreciates "MedPAC’s willingness to review policy concepts intended to aid both Medicare beneficiaries and the taxpayers." He says the organization "will continue to make good faith efforts toward improving the millions of lives in our centers."

Robert Gatty

Robert Gatty has more than 40 years of experience in journalism, politics and business communications and is the founder and president of G-Net Strategic Communications based in Myrtle Beach, South Carolina. He can be reached at bob@gattyedits.com.