April 10

The Washington Weekly: April 10, 2015

As Senate Prepares for Action on SGR, CMS Issues Report Raising Concerns 

This week, many members of the Senate spent recess considering their upcoming plans for a vote on repealing the Sustainable Growth Rate (SGR) formula used when calculating physician reimbursement for Medicare patients. The Medicare Access and CHIP Reauthorization Act (H.R. 2) passed the House two weeks ago in a bipartisan vote, 392-37. Republicans in the Senate widely support the bill, but there have been concerns raised by Senate Democrats, including Senate Finance Committee Ranking Member Ron Wyden (D-OR). Wyden has said that while he plans on voting in favor of the bill next week, he along with other Democrats would like to see the bill provide funding for the Children’s Health Insurance Program (CHIP) program for four years instead of two. Other areas where Democrats will be looking to make changes include the bill’s abortion restriction and Medicare therapy cap amendments. The Centers for Medicare and Medicaid Services (CMS) has also expressed concerns over the bill, warning in a report released this week that the bill could create the same shortfalls in Medicare physician payments that the bill is intending to remedy. The report noted that when the bill’s 5%annual bonuses in physician payments expire as scheduled in 2024, a major payment cut for most physicians would follow the next year. The payment structure would also be troublesome in years with high inflation, according to the report. A full copy of H.R. 2 can be found HERE. The full CMS report on SGR can be found HERE.


FDA Finalizes Guidance on Expedited Approval Pathway for Devices 

On Thursday, April 9, the Food and Drug Administration’s (FDA) Center for Devices and Radiological Health (CDRH) finalized two guidance documents establishing the agency’s new Expedited Approval Pathway (EAP) for devices. The first guidance establishes the framework of the EAP: The EAP will rely on less evidence than would ordinarily be required for approval. In return, FDA will require the sponsor of the approval EAP device to conduct rigorous post-market surveillance and studies on its product, described in more detail in the second guidance discussing the EAP. This pathway will only be available to Premarket Approval (PMA) and de novo devices, although de novo applications will not qualify for the full scope of the EAP according to FDA. Furthermore, the device and sponsor will have to meet certain additional requirements to participate in the EAP. The guidance documents can be found HERE and HERE.


CMS Issues Final Call Letter and Medicare Advantage Rate Notice 

On Monday, April 6, the Centers for Medicare and Medicaid Services (CMS) released its “Announcement of Methodological Changes for CY 2016 for Medicare Advantage Capitation Rates and Part D and Part D Payment Policies and 2016 Call Letter.” According to the rate notice, CMS will increase Medicare Advantage (MA) payments by 1.25%. The MA payment increase is an adjustment from the projected decrease of 0.9% previously announced by CMS in February’s draft Call Letter. Additionally, CMS updated benefit parameters for Medicare Part D according to statutorily prescribed methodology and provided key program dates for CY 2016. CMS did not finalize its proposal to adjust certain Star Ratings measures to account for low income and dual-eligible beneficiaries, citing uncertainty about the long-term effects of such a change. The full text of the notice can be found HERE.


CMS Issues EHR Incentive Program Proposed Rule with Modifications to Meaningful Use for 2015-2017

On Friday, April 10, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule for the Medicare and Medicaid Electronic Health Record (EHR) Incentive Programs that would align Stage 1 and Stage 2 goals and measures with the long-term proposals for Stage 3. For example, the rule would change the reporting period in 2015 to a 90-day period to align with the calendar year. The rule also aims to streamline the program by removing reporting requirements on measures that have become redundant or have topped out. CMS is accepting comments through June 15. The proposed rule is available HERE.


House & Senate Budget Negotiators Begin Deliberations

 On Thursday, April 9, Congressman Tom Price, MD (R-GA) and Senator Mike Enzi (R-WY), Chairmen of the House and Senate Budget Committees, returned to DC to begin discussions ironing out differences between the budges passed by their respective chambers. Both plans balance the budget in a decade by cutting about $5 trillion, without raising taxes, and add nearly $96 billion to the Pentagon’s budget through a war-funding account not subject to current spending caps. However, the two plans differ on future domestic spending amounts, Medicare spending reforms, and how to use a procedural tool known as reconciliation that allows the Senate to pass a bill with a simple majority vote instead of the typical 60-vote threshold. This lower threshold would allow Congressional Republicans to pass a repeal of the Affordable Care Act (ACA) and send it to President Obama’s desk for the first time since its passage. However, this repeal vote would largely be symbolic as President Obama would almost assuredly veto the measure.


House and Senate Announce Hearings on the Medical Device Tax

On Wednesday, April 15, the Senate Joint Economic Committee, chaired by Senator Dan Coats (R-IN) will hold a hearing entitled “Small Business, Big Taxes: Are Taxes Holding Back Small Business growth?” Not only is the hearing expected to discuss several tax burdens on small companies, but Senator Coats’ staff has indicated the medical device tax will be discussed at the hearing. Moreover, Mr. Thomas Hoghaug, CEO of both Signus Medical and Lockdown Surgical – two small medical device companies, will be one of the witnesses for the hearing. More information about the hearing can be found HERE.

On Thursday, April 23, the Senate Finance Subcommittee on Health Care, chaired by Senator Pat Toomey (R-PA) will hold a hearing entitled “A Fresh Look at the Impact of the Medical Device Tax on Jobs, Innovation, and Patients.” The hearing will seek to address the negative consequences the medical device tax has placed on research and development (R&D), medical innovation, and patient access to important technologies and treatments. Expected witnesses for the hearing include: Bruce Heugel, CFO of B Braun Medical; Quinton Farrar, former head of R&D for Smiths Medical; and Justin Minyard, a retired First Sergeant in the U.S. Army. Interesting to note, Senate Finance Committee Ranking Member Ron Wyden (D-OR) expressed concern with the hearing being held at the subcommittee level and called for a full committee hearing on the subject in the near future.  More information about the upcoming Health Care Subcommittee hearing can be found HERE.


House Republicans Release April Legislative Agenda

On Thursday, April 9, House Majority Leader Kevin McCarthy released the House of Representatives’ legislative agenda for the month of April. Starting April 13 the House will focus on a variety tax bills and the Internal Revenue Service (IRS) accountability. However, H.R. 160, Erik Paulsen’s (R-MN) repeal of the medical device tax, is not currently listed on the agenda. Subsequently, the House will shift its attention to cybersecurity. Various committees will be working on legislation that seeks to secure cyber networks and prevent data breaches. The final weeks of the month will be directed towards two appropriation bills, Military Construction/Veteran Affairs and Energy and Water Development, and oversight issues concerning former Secretary of State, Hillary Clinton. The full April agenda can be found HERE.


CMS Issues Mental Health Parity Proposed Rule for Medicaid and CHIP 

On Monday, April 6, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule that would apply certain provisions of the Mental Health Parity and Addiction Equity Act of 2008 to Medicaid and Children’s Health Insurance Program (CHIP). The law requires health plans that provide behavioral health care coverage to do so with the same terms covering medical and surgical care. The proposed rule would apply the law to Medicaid enrollees who receive services through managed care organizations and alternative benefit plans, as well as to all CHIP participants regardless of whether their care is provided through fee-for-service or managed care. The proposed rule can be viewed HERE.

October 16

MedPAC October 9-10, 2014 Meeting

On Thursday, October 9, and Friday, October 10, the Medicare Payment Advisory Commission (MedPAC) held a public meeting during which members discussed findings and potential recommendations for issues related to Medicare. We monitored agenda items focusing on sharing risk in Medicare Part D, potentially inappropriate opioid use in Medicare Part D, private-sector initiatives to manage post-acute care, as well as validating relative value units in Medicare’s fee schedule for physicians and other health professionals. This memorandum summarizes relevant portions of discussions on these topics. The full presentations and a transcript from the meeting are available HERE.

I. Sharing Risk in Medicare Part D

MedPAC examined approaches for improving risk-sharing in Medicare Part D, including revisions to risk-sharing mechanisms and changes in low-income subsidy (LIS) policies. Four risk-sharing mechanisms currently are used, including capitated payments, risk adjustment, individual reinsurance, and risk corridors. Rachel Schmidt, a principal policy analyst for MedPAC, presented to the Commission on whether the original structure for sharing risk within Medicare Part D is still appropriate. According to Schmidt, these mechanisms were established to support the original market for stand-alone Part D plans, but the focus of risk-sharing has shifted more towards managing high-cost enrollees.

The presentation reviewed data suggesting that risk-sharing may merit revision, such as findings that reinsurance spending has grown 143% since 2007 and that sponsors have consistently bid too high based on concerns of attracting high-cost enrollees, which results in sponsors paying back Medicare each year.  It also noted the lack of equal distribution of LIS enrollees among plans:  75% or more of LIS enrollees were concentrated in just 9 of the top 20 PDPs in 2012.

In terms of potential future policy changes, Commissioners discussed allowing the Secretary more flexibility in changing the width of the risk corridors. One suggestion that received a fair amount of discussion was to separate the types of risk and allow for different rates among those types.  Proposed risk categories included, utilization risk, price mix risk, selection risk and regulatory risk. Commissioners indicated these designations could be beneficial where high-cost specialty drugs, like Sovaldi, are commercialized during the year and could not be projected in bids. In this case, some Commissioners suggested wider corridors so that the risk would fall on the federal government more than on the plan provider. Other Commissioners suggested lowering or eliminating reinsurance to allow the plan to bear the cost because these are insurable risks that risk adjusters should be able to account for in their bids. Some Commissioners also discussed the idea of using ACOs to manage risk by including Medicare Part D in the ACO framework. Despite entertaining several ideas, the Commissioners indicated that they need additional information before making any recommendations to Congress.

II. Potentially Inappropriate Opioid Use in Medicare Part D

MedPAC examined the use of opioids in Medicare Part D and considered policy options to manage their increase in use in recent years. MedPAC noted that more than one-third of Medicare beneficiaries use opioids in a given year, accounting for approximately 5% of total prescriptions and spending for Part D drugs.  It also indicated that some use may not be clinically appropriate based on recent GAO and OIG findings.  MedPAC acknowledged that opioid use of pain related to cancer and end-of-life care is well-supported in medical literature.  It focused, instead, on use of opioids to manage other pain, such as use in patients without hospice stays or cancer diagnoses.  While some of the Commissioners suggested data is insufficient to support use of opioids outside of cancer treatment and post-surgery, several of the physicians on the Commission noted that opioids may be used more frequently within the Medicare population due to reduced side effects, as compared to other pain management drugs.

The Commission discussed current opioid use monitoring tools in Part D, such as drug utilization review and the overutilization monitoring system, as well as changes taking effect next year as a result of recent regulatory revisions to better monitor opioid overuse and abuse.  In terms of next steps, Commissioners requested more information about the most prevalent conditions within high-utilization beneficiaries. They plan to focus on prescribing of opioids in long-term care settings and the effectiveness of using mechanisms employed in managing opioid use in other medication areas. They also expressed their interest in examining other policy options, such as lock-ins for pharmacies.

III. Private-sector Initiatives to Manage Post-acute Care

Under fee-for-service Medicare, incentives do not exist for encouraging efficient post-acute care (PAC). MedPAC examined private sector incentives and tools to determine whether any lessons learned could be applied to the fee-for-service system. MedPAC researchers contacted and interviewed several private sector plans. The plans interviewed generally encourage the use of high-quality providers through education, preferred networks, and cost sharing. They often required prior authorization for the site of care and the amount of service and also utilized a PAC benefit manager to bear risk. Additionally, these plans utilized post-discharge monitoring with hospital/PAC provider collaboration to improve quality.

Commissioners discussed adding a third party vendor to act as the PAC benefit manager within Medicare. While Commissioners agreed that one entity needs to bear responsibility for PAC, several commissioners worried that adding an additional party would lead to further fragmentation and lower quality care. All Commissioners agreed that MedPAC should not recommend a new entity to manage PAC within Medicare. They acknowledged that integration of medical records would be helpful to allow for better integration of care. Additionally, the Commissioners discussed allowing hospitals to have more freedom to steer patients to PACs. The Commissioners acknowledged that the current system relies on soft-steering and considered the option of changing the law to allow for physicians to participate in more hard-steering. Commissioners noted the potential complications in allowing hard-steering if the physician is participating in bundled payments through ACOs.

IV. Validating Relative Value Units in Medicare’s Fee Schedule for Physicians and Other Health Professionals

Because of inaccuracies in relative value units (RVUs) in the current physician fee schedule and concerns over comparatively low compensation for primary care physicians, MedPAC is examining the best method to adjust these inaccuracies. CMS currently uses a “bottom-up” approach to re-evaluate RVUs, where time data is collected on a service-by-service basis.  MedPAC asserts that it is costly to evaluate all 7,000 codes as not all RVUs need to be evaluated. Instead, MedPAC has conducted a study that uses a top-down approach to identifying overpriced services. The Commission’s method involved examining data from practices on mix of services, total time worked, and time assumed in the fee schedule. From this information, they are able to flag services that need a more detailed assessment.

While most of the Commissioners supported the idea of a top-down approach, a few were concerned that physician assistants and nurse practitioners may not be included in the total time worked. Others were concerned that there could be bias and difficulty ensuring quality hours worked. However, Kevin Hayes, principal policy analyst, noted that the use of practice managers is a good way to control for reporting bias. The Commission noted that while CMS’ contractors are near completion in their current evaluation of RVUs, they do not want CMS to lose sight of the top-down approach process. The Commission is not submitting a formal recommendation at this time.

April 17

Sequestration Update: The Process and its Impact on Federal Health Programs



TO:               Clients

FROM:         Kenny Hodge, Associate Director

DATE:          April 17, 2013

RE:               Sequestration Update: The Process and its Impact on Federal Health Programs


Click here to download a copy of this memo.


On August 2, 2011, President Obama signed into law the Budget Control Act (BCA) of 2011 (P.L. 112-25). This bill allowed the President to raise the debt limit by $2.1 trillion in three steps and cut federal spending by $917 billion over ten years. The bill also established the Joint Select Committee on Deficit Reduction (the “Super Committee”), tasked with approving at least another $1.2 trillion in deficit reduction by November 23, 2011. As a failsafe in case the Super Committee did not produce a plan, the BCA included a sequestration trigger to ensure at least $1.2 trillion of deficit reduction, split evenly among defense and non-defense programs. When the Super Committee announced they failed to reach an agreement on November 21, 2011, the sequestration process commenced. This memorandum explains the sequestration process and its impact on federal healthcare programs.


The Sequestration Mechanism

The sequester mechanism was originally created in 1985 in the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act of 1985 for the same purpose for which it is being used today: to provide automatic spending cuts if federal spending exceeds a set of fixed targets, or caps.

Upon passage of the BCA, a set of spending caps were automatically put into place on discretionary programs, reducing the deficit by $917 billion from fiscal year (FY) 2012 through FY 2021. These caps were based off of 2011 Congressional Budget Office (CBO) spending projections for those years. Thus, while discretionary spending will be reduced as compared to spending projections, federal spending will still be allowed to grow moving forward. No future automatic sequester cuts to discretionary spending will occur because the caps will be implemented at the beginning of each fiscal year. Funds in the accounts of federal agencies will never be reduced at one time; instead these agency accounts will be replenished with fewer funds than they had received the previous fiscal year.

When the Super Committee failed to produce a deficit reduction plan, the BCA’s $1.2 trillion deficit-reducing failsafe was triggered. This failsafe includes two parts: 1) a new set of lower mandatory and discretionary spending caps; and 2) an automatic budget-cutting enforcement tool (i.e., the sequester itself). This new regime of lower BCA federal spending caps and the enforcement tool to preserve them are today referred to as “sequestration.”

In the context of sequestration, 2013 is a special case. The BCA provided that sequestration would begin on January 2, 2013. Although this date was later postponed to March 1, 2013 by the fiscal cliff deal[1] reached in January, the new spending caps were set to be implemented in the middle of a fiscal year , which begins on October 1. This mid-fiscal year timing is why, unlike the initial BCA cuts, sequestration was required to reduce the deficit in 2013. This tool cut funding from federal agencies across the board, at a set percentage dependent on the type of program (discretionary or non-discretionary) and category (defense or non-defense).

The Office of Management and Budget (OMB) is tasked with utilizing the sequester mechanism to enact these cuts. Each year until 2021, OMB will create a sequestration report estimating if the BCA spending caps will be breached during that fiscal year and recommend any sequestration cuts needed to bring federal spending in line with the BCA caps. OMB action generally would only occur when Congress appropriates funding at a level that breaches these caps.


2013 Discretionary Spending Reductions

After the failure of the Super Committee and more than one year of discussions thereafter about ways to avoid the sequester, it finally took effect on March 1, 2013, reducing funds in federal accounts by $85 billion for FY 2013.

Most of the public health agencies within the Department of Health and Human Services (HHS), namely the Food and Drug Administration (FDA), the Health Resources and Services Administration (HRSA), the Centers for Disease Control and Prevention (CDC), and the National Institutes of Health (NIH), are funded as non-defense discretionary programs. When OMB released its FY 2013 sequestration report, it determined that non-defense discretionary accounts will be cut at a rate of 5.0% in order to implement the sequester cuts in FY 2013[2]. OMB also determined that user fees, such as the FDA user fees paid by the pharmaceutical drug and medical device industries, are part of the sequestrable base for non-defense discretionary program funding.

The Centers for Medicare and Medicaid Services (CMS) are impacted much differently because of special sequestration exemptions in the BCA for Medicare and Medicaid. Medicaid is entirely exempt, while Medicare provider payment cuts are capped at 2%. Thus, while these cuts are not insignificant, sequestration affects a smaller percentage of the program’s overall budget.

The chart below outlines the sequester’s impact on federal health programs in FY 2013[3].


Projected Sequester Amount
(in millions)

Percentage of Budget *

Centers for Medicare and Medicaid Services (CMS)

$11,851 of $1,124,532


Food and Drug Administration (FDA)

$209 of $4,176


National Institutes of Health (NIH)

$1,553 of $31,049


Health Resources and Services Administration (HRSA)

$365 of $8,512


Centers for Disease Control and Prevention (CDC)

$303 of $6,019


* Note: While most of the funding for these agencies comes from non-defense discretionary accounts, some funds are categorized as either mandatory or defense related. Hence, these numbers are not all equal to the 5.0% non-defense discretionary sequester rate.


2013 Medicare Spending Reductions

With Medicaid and Social Security exempt from sequestration, Medicare is the largest mandatory spending program impacted by the sequester. The BCA and sequester also work differently for mandatory spending compared to discretionary spending. Placing true caps on mandatory spending is not possible because of the automatic nature of the spending. Instead, sequestration reduces the rate of mandatory spending by a fixed amount. As noted before, however, the BCA capped Medicare provider payment cuts at 2%. CMS has some discretion in how to implement these cuts, and the Agency announced on March 1 that it would need until April 1 to implement the cuts. During March, the Agency specified how it will implement the cuts, both for Medicare Fee-for Service (FFS) in Part A and Part B and Medicare’s contractual payments for Medicare Advantage (MA) and Part D[4].

For Medicare FFS, claims with dates-of-service or dates-of-discharge on or after April 1, 2013 were reduced by 2%. Claims for durable medical equipment (DME), prosthetics, orthotics, and supplies (including DME Competitive Bidding Program claims) were reduced by 2% based upon whether the date-of-service, or the start date for rental equipment or multi-day supplies, was on or after April 1, 2013. These payment adjustments are applied after determining any applicable coinsurance, deductible, or Medicare Secondary Payments. For example, providers normally are reimbursed at a rate of Average Sales Price (ASP) + 6% for Part B drugs and biologics. Only 80% of this payment is made by Medicare, however, while the other 20% is paid for by the beneficiary. Thus, the 2% sequester cuts only apply to the 80% of the payment made by Medicare, resulting in an effective Part B drug reimbursement rate of approximately ASP + 4.3% under sequestration.

For Medicare Advantage and Part D payments, CMS will cut each of its monthly contractual payments to MA and Part D plans by 2% beginning on April 1. Low-income subsidies and additional subsidies for beneficiaries whose spending exceeds catastrophic levels in Part D are exempt from sequestration.

Patient and provider advocates have raised concerns regarding the impact of the 2% reduction in Medicare, focusing heavily on patient access issues that could occur with Medicare Part B drugs and biologics. We anticipate that Congress and the Administration will be closely monitoring patient access issues that may result and may use the outcomes to bolster arguments for or against the ongoing debt and deficit reduction proposals to reduce ASP reimbursement.


Sequestration from 2014-2021

With the 2013 sequester underway, many stakeholders are examining the potential impact of the sequester in the outyears, from 2014-2021. The purpose of sequestration is to reduce the deficit by $109.4 billion each year ($54.7 billion each from defense and non-defense accounts), summing to $1.2 trillion. Additionally, the BCA spending caps were based off of CBO spending projections for those years and, thus, the federal budget will begin growing again in 2014, but at a reduced rate and based off of the projected spending for that year.

With implementation in the middle of FY 2013, 2013 should be the only year where agencies are operationally affected mid-year by the sequester. Instead, the Appropriations Committees in the House and Senate will delegate funding within the newly reduced spending caps for 2014 and beyond. The automatic sequester will act primarily as an enforcement mechanism where spending caps are breached by the Appropriations Committees. This type of enforcement already occurred with the recent enactment of the FY 2013 Continuing Resolution (CR) passed in late March (P.L. 113-6), which funded some federal agencies above the sequestration caps. President Obama issued a second sequestration order on April 5, which cut the CR funding by $1 billion to bring spending for FY 2013 back in-line with what is prescribed for deficit reduction targets this year.

The Medicare cuts for FY 2014 will largely remain unchanged, with a 2% provider payment cut in effect through 2021. The payment cuts technically could dip below 2%, but because Medicare spending is projected to grow faster than the rest of the federal budget, payment cuts likely will remain fixed at the current 2% cap. As a result, Medicare will take a growing share of the $54.7 billion annual non-defense cuts, so other non-defense programs, such as FDA and NIH, will absorb a declining share of the cuts in the sequester outyears. To illustrate, Medicare will account for $11.4 billion (or 21%) of the non-defense cuts in 2014 but $17.8 billion (or 33%) in 2021.



 The March 1 sequester cuts have already begun to impact federal health programs. Although the cuts are largely unpopular with most healthcare stakeholders and the source of highly politicized debates among lawmakers, substantive discussions to replace the sequester cuts have stalled. Thus, all stakeholders impacted by federal health programs must deal with the ramifications for the foreseeable future. FY 2013 is likely to be the harshest year for federal agencies, as the federal budget will begin growing again in FY 2014, and the Appropriators in Congress will have the opportunity to fine tune federal funding and avoid the blunt cuts suffered in 2013.

* * *

We hope this memorandum is helpful in understanding the sequestration process and its impacts on federal health programs. We would be pleased to speak in greater detail regarding any of the issues raised in this memorandum.


[1] The American Taxpayer Relief Act of 2012(P.L. 112-240).

[2] OMB, OMB Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013 (2013), available at: http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/fy13ombjcsequestrationreport.pdf

[3] Funding levels for these agencies were derived from the FY 2013 Continuing Resolution (P.L. 113-6), while the sequestrable amounts were calculated from the OMB sequester report.

[4] CMS, “Mandatory Payment Reductions in the Medicare Fee-for-Service (FFS) Program – Sequestration,” Medicare FFS Provider e-News (March 8, 2013), available at:  http://www.cms.gov/Outreach-and-Education/Outreach/FFSProvPartProg/Downloads/2013-03-08-standalone.pdf.

March 8

March 7-8 Medicare Payment Advisory Commission (MedPAC) Public Meeting

Download the full report here


The Medicare Payment Advisory Commission (MedPAC) held public meetings on Thursday, March 7, and Friday, March 8, to discuss issues of interest to the Commisssion. There were no recommendations made or votes conducted at these meetings.

Commissioners in attendance included Glenn M. Hackbarth, J.D., Chairman; Michael Chernew, Ph.D., Vice Chairman;  Scott Armstrong, M.B.A., F.A.C.H.E.; Katherine Baicker, Ph.D.;  Peter Butler, M.H.S.A.; Alice Coombs, M.D.; Thomas M. Dean, M.D.; Willis D. Gradison, M.B.A.; William J. Hall, M.D., M.A.C.P.; Jack Hoadley, Ph.D.; Herb Kuhn; George N. Miller, Jr., M.H.S.A.; Mary Naylor, Ph.D., RN, FAAN; David Nerenz, Ph.D.; Rita Redberg, M.D., M.Sc., F.A.C.C.; Craig Samitt, M.D., M.B.A., and Cori Uccello, F.S.A., M.A.A.A., F.C.A.

 Meeting Highlights

Refining the Hospital Readmissions Reduction Program

In 2008, MedPAC recommended the federal government examine a readmissions reduction program. Through the Affordable Care Act (ACA), Congress acted upon this recommendation by creating a program which began in 2010, and penalties for readmissions went into effect in 2012. The payment penalties are capped at 1% of base operating payment in 2013, 2% for 2014, and 3% for 2015 and thereafter. Readmissions are measured among three conditions: acute myocardial infarction (AMI), heart failure, and pneumonia.

MedPAC staff conducted an analysis of the program to date, reporting that from 2009 to 2011, there was a 0.7% decline in the number of beneficiaries who returned to hospitals within 30 days of discharge and whose second visits might have been prevented. The analysis concluded that there are four issues with the implementation of this program:

  1. Random variation makes detection of differences in individual conditions difficult
  2. The penalty does not change as industry performance improves
  3. Socioeconomic status (SES) is related to readmission rates, but not captured adequately by the policy, and
  4. Some mortality rates are related to readmission rates.

Chairman Hackbarth said this effort to reduce readmissions was an opportunity to identify additional areas of improvement while larger changes in the Medicare fee-for-service (FFS) system are debated. Chairman Hackbarth and other Commissioners were supportive of the idea to use a comparison group based on SES for further refining the standards of the program. There was also concern that teaching hospitals are penalized more harshly relative to other hospitals with comparable readmission rates, since they see more complex cases and more low-SES patients.  Several commissioners were supportive of basing readmissions standards on measures which account for all medical conditions as opposed to the three medical conditions currently observed.

Effects of Adherence to Part D Covered Drugs on Parts A and B Spending

MedPAC staff presented an analysis of the relationship between medication adherence and health care spending on other services.  The staff tracked 5 million beneficiaries with congestive heart failure, chronic obstructive pulmonary disease (COPD), or depression for 6 months to determine their baseline for medication adherence (measured by prescription refills), and for an additional year to measure their levels of spending for Medicare Part A and Medicare Part B.

The analysis concluded that the effects of medication adherence had varied effects on spending, relative to condition, medication regimen, and low-income status (LIS). Reductions in spending for those beneficiaries with higher adherence rates were typically largest for inpatient hospitals. Additionally, a greater improvement in adherence did not always result in a greater reduction in spending. The staff suggested collecting this data over a larger period of time to see if the results were sustaining.

The Commissioners questioned if MedPAC should focus on medication adherence, noting it may be an area in which their influence is limited. The Commissioners also acknowledged that patients with satisfactory medication adherence are usually healthier than other beneficiaries for additional reasons such as maintaining healthy lifestyles.

Competitively- determined plan contributions

The MedPAC staff presented an analysis of how moving Medicare to a competitively-determined plan contribution (CPC) model, similar to competitive bidding, could affect spending and cost sharing. This design has been considered by lawmakers along with other models such as the voucher system. MedPAC staff concluded that the CPC model could result in some savings, with the federal government paying approximately 93%, if beneficiaries opted for the lower of either the average bid of local health plans or traditional fee-for-service. However, such a model would require beneficiaries to pay a higher premium.

Addressing Medicare Payment Differences Across Settings: Ambulatory Care Services

MedPAC continued the discussion from previous meetings regarding aligning payment rates across care settings, noting the number of physicians employed by hospitals increased by 55% from 2003 to 2011. This transition has had and will continue to have a pronounced effect on Medicare spending, as more services are provided in the outpatient department (HOPD) as opposed to a physician office setting. MedPAC staff reported that, if migration to HOPDs continues at the current rate, Medicare spending on evaluation and management (E&M) visits would be $1.2 billion higher per year by 2021, and beneficiary cost sharing would be $310 million higher by 2021.

MedPAC has deliberated on recommending equalized payment rates among some ambulatory payment classifications (APCs), but concerns have arisen regarding a disparate adverse effect for rural, government, and teaching hospitals. This policy would reduce Medicare spending by $900 million, but would also reduce hospitals’ Medicare revenue by 0.6% and OPD revenue by 2.7%. The Commission did not make a formal recommendation on equalizing payment rates.

The Commission also discussed Medicare’s health professional shortage areas (HPSA) payment adjustment and the use of shared decision-making to increase patient-centered care and reduce health care disparities.

Next Friday, Chairman Glenn Hackbarth will testify at a House Ways and Means Health Subcommittee hearing regarding the Commission’s March Report to Congress. The next MedPAC public meeting will be held on April 4 -5, 2013.

Please contact Aubrey Beckham with questions or request more information on this meeting at: abeckham@kimbell-associates.com. Meeting transcripts are usually posted 4-5 days after the meeting at www.medpac.gov.