The Medicare Payment Advisory Commission’s proposal last week to reduce indirect medical-education payments by a full percentage point in 2008 has the potential to undermine payments to teaching hospitals, the industry fears.
The proposal, one of many suggested by MedPAC, would come at an inopportune time for teaching hospitals, said Don May, vice president for policy at the American Hospital Association. Major teaching hospitals are some of the most financially strapped hospitals in the country and already have very small margins, May said. Yet, "they’ve been asked to be leaders in homeland preparedness, to be ready for disasters in our area, and to train the nation’s physicians."
MedPAC also proposed that hospital reimbursement be tied to a quality incentive program and suggested a fix to the sustainable growth-rate formula, used to calculate physician reimbursement. The recommendations were made at a meeting last week in preparation for the release of its March report to Congress. MedPAC also plans to release a separate report in March that will address fixes to Medicare’s physician-fee-schedule formula.
But it was the education cut that caught the industry’s eye. MedPAC is proposing that Congress reduce the indirect medical-education adjustment by 1 percentage point to 4.5% in fiscal 2008, "concurrent with the implementation of the severity adjustment" to DRGs that the CMS is phasing in with its new system to pay hospitals for inpatient care.
The funds obtained from reducing the education adjustment should be used to fund a quality incentive payment system, MedPAC recommended.
Some MedPAC commissioners have reasoned that the education payments are too high, and that a severity-adjusted DRG system would adequately compensate facilities such as teaching hospitals, which often have the sickest and poorest patients.
Yet, industry participants said the commission was premature in making its recommendation. Kenneth Raske, president of the Greater New York Hospital Association, argued that MedPAC "used a contrived calculation ... with no empirical or theoretical evidence to back it up," he said. Nobody knows what approach the CMS will use to adjust the DRGs for patient severity, Raske said.
MedPAC is presuming that a severity-adjusted system will boost payments to teaching hospitals, "but we can’t judge that until the CMS proposes what they’re going to propose," said Robert Dickler, a senior vice president at the Association of American Medical Colleges.
Teaching hospitals get the education payments to compensate for the higher patient-care costs they incur, relative to nonteaching hospitals.
MedPAC also proposed giving hospitals a full marketbasket increase in fiscal 2008 for inpatient and outpatient payment rates. The increase, which according to the CMS’ latest forecast is 3.1%, would be concurrent with the adoption of a quality incentive payment program. Congress has already mandated tying quality incentives to hospital payments beginning in 2009, and that’s the course that the CMS should follow, Raske said.
There is obviously a fundamental flaw in the methodology, Raske said, and even though MedPAC is talking about "reforming" it, "We would strongly oppose any attempt to impose this flawed payment method on hospitals."
