Medicare Payment Advisory Commission Recommends Pay-for-Performance System
The Medicare Payment Advisory Commission on Wednesday voted to approve a series of recommendations to Congress that include instituting Medicare's first pay-for-performance incentives for providers and reducing reimbursements to hospitals by market basket minus 0.4 percentage points in 2006, CQ HealthBeat reports (CQ HealthBeat, 1/12). In December, MedPAC issued its draft recommendations, which included the pay-for-performance system and a full market-basket update for hospitals (California Healthline, 12/10/04). MedPAC is scheduled to send its full report to Congress in March. Recommendations are summarized below.
- Pay-for-Performance: MedPAC recommended that Congress "establish a quality incentive payment policy" for hospitals, home care facilities and doctors but did not provide additional details.
- Extension of Specialty Hospital Moratorium: MedPAC also "appear[ed] poised" to recommend extending the existing moratorium on the construction of physician-owned specialty hospitals by 18 months, until Dec. 31, 2006, CQ HealthBeat reports. MedPAC recommended that during those 18 months, HHS adopt a series of recommendations relating to the diagnosis-related group system, through which hospitals are paid a fixed amount of funds to care for patients based on specific diagnoses. The proposed changes are intended to eliminate incentives that reward providers with higher payments for treating patients with particular conditions that are more profitable. MedPAC members on Thursday are expected to make final recommendations on the moratorium and DRG system changes.
- Payment Updates for Inpatient, Outpatient Care: MedPAC also voted to recommend that Congress update payments to hospitals for both inpatient and outpatient care by market basket minus 0.4 percentage points in 2006. As a result, payments to hospitals will increase by 2.9%, instead of the full-market basket update of 3.3% (CQ HealthBeat, 1/12). Previously, MedPAC had considered recommending a full-market basket update for 2006 because data showed that hospitals' profit margins for Medicare beneficiaries are projected to remain below negative 1.5% in 2005 (California Healthline, 12/10/04). However, in making its final recommendation Wednesday, MedPAC said data also suggested that some hospitals "could do better to lower their costs," CQ HealthBeat reports. The payment change would save Medicare between $200 million and $600 million on inpatient care in the first year and between $1 billion and $5 billion over five years. For outpatient care, the change would reduce Medicare spending by between $50 million and $200 million in 2006 and by less than $1 billion over five years.
- Payment Freezes: MedPAC also recommended that Congress freeze prospective payment rates for home care agencies and skilled nursing facilities in 2006. The change would reduce Medicare home care spending by between $200 million and $600 million in calendar year 2006 and skilled nursing facility spending by the same amount in fiscal year 2006 (CQ HealthBeat, 1/12). In its draft recommendations in December, MedPAC cited data showing double-digit profit margins for home care agencies and skilled nursing facilities, as well as data on access to care, volume of service, quality of care and other factors showing that current Medicare payments are adequate (California Healthline, 12/10/04).