Medicare Payment Advisory Commission Releases Draft Recommendations
The Medicare Payment Advisory Commission on Thursday issued a series of draft recommendations that, among other things, propose instituting a pay-for-performance system that could "bring about an historic change in the way Medicare and potentially other insurers pay for health care" in the United States, CQ HealthBeat News reports (Reichard , CQ HealthBeat News, 12/9). The recommendations, which are subject to revisions, will be voted on by MedPAC members in January (Reichard , CQ HealthBeat News, 12/9).
Summaries of the draft proposals appear below.
- Pay for Performance: The recommendations call on Congress to establish quality incentives that take into account the severity of patients' illnesses in Medicare payment policy for hospitals, physicians and home health agencies. Under the proposals, CMS would earmark 1% to 2% of the entire pool of money paid annually to each of the three sectors involved in the proposed pay-for-performance system and use the funds to pay bonuses to providers that meet quality measures. CQ HealthBeat News reports that MedPAC issued similar pay-for-performance recommendations for managed care plans and dialysis facilities last year (Reichard , CQ HealthBeat News, 12/9).
- DRG System Changes: MedPAC also recommended "sweeping changes" in the diagnosis-related group system, through which hospitals are paid a fixed amount of funds to care for patients based on specific diagnoses, CQ HealthBeat News reports. The proposed changes are intended to eliminate incentives in the DRG system that reward providers with higher payments for treating patients with particular conditions that are more profitable. The changes are targeted at physician-owned specialty hospitals and call for CMS to eliminate most profit-based incentives for patient selection by refining the definition of DRGs, weighting DRG payments based on a hospital's actual costs rather than its charges, implementing a "relative value method" to adjust hospital costs and reducing weights for hospitals that receive large outlier payments. Related recommendations aim to improve regulation of referrals to doctor-owned hospitals (Reichard , CQ HealthBeat News, 12/9).
- Payment Freezes: Several MedPAC draft recommendations call for freezing payments to home health agencies and skilled nursing facilities, CQ HealthBeat News reports. According to MedPAC, the home health industry's profit margin was 13.6% in 2003 and is projected to be 12.1% in 2005. In addition, data on access to care, volume of service, quality of care and other factors show that current Medicare payments are adequate, MedPAC said. As a result, the commission recommended freezing payments for home health agencies beginning in calendar year 2006. MedPAC also noted that skilled nursing facilities had an average profit margin of 11% in 2003 and are projected to have an average 13% profit margin in 2005. As a result, MedPAC recommended the elimination of the skilled nursing facility payment update for fiscal year 2006. MedPAC also recommended a 2% payment update for outpatient dialysis services -- equal to the composite rate increase in the dialysis market basket index, minus an adjustment for productivity growth of 0.8 percentage points for 2006 (Carey, CQ HealthBeat News, 12/9).
- Full Market Basket Updates for Inpatient and Outpatient Care: According to data presented to MedPAC members, hospitals' profit margins for Medicare beneficiaries fell from 5% in 2001 to negative 1.9% in 2003, and that figure is projected to remain below negative 1.5% in 2005. MedPAC members thus recommended a full-market basket update for both inpatient and outpatient payments for 2006. CQ HealthBeat reports that the prospects for adoption of the recommendation are uncertain given pressure in Congress to lower spending growth in Medicare and other federal programs (Reichard , CQ HealthBeat News, 12/9).
- Health Care Information Technology: Another draft recommendation calls on Congress to "authorize an appropriated loan fund" for community-based efforts to increase use of health IT systems. According to a MedPAC analysis, a loan fund would raise short-term Medicare spending but ultimately would result in better quality of care and better-coordinated treatments. However, some commissioners expressed concerns that Congress would not support a loan fund because of concerns about the federal deficit (Reichard , CQ HealthBeat News, 12/9).