MedPAC pushes 1% pay increase for hospitals

HHS Secretary Kathleen Sebelius should limit hospital cuts she was required to make under a year-end fiscal cliff law to leave those facilities with a 1% payment increase next fiscal year, Congress' primary Medicare advisory body recommended Thursday.

The Medicare Payment Advisory Commission unanimously recommended that Congress direct Sebelius to increase inpatient and outpatient prospective payments by the 1%, which is technically a reduction from the pre-existing legislative formula that said hospitals should receive a 1.8% increase starting next October.

Sebelius was required under the year-end American Taxpayer Relief Act of 2012 to find $11 billion in savings from hospitals within four years through rate reductions. If the cut was evenly spread out over the four years—as the Congressional Budget Office assumed it would be—then it would reduce the fiscal 2013 update to a 0.6% cut.

But if the MedPAC recommendation is followed, Medicare hospital spending would increase in the next fiscal year by up to $2 billion, according to the advisory body.

“The context has changed since our December discussion; a proposal that would have saved money relative to the current law baseline in December now costs money relative to the new baseline as amended by the Taxpayer Relief Act,” said Glenn Hackbarth, chairman of MedPAC. “The fact that the legislative context has changed does not alter our conclusion that the base rate should increase by 1%, regardless of the Taxpayer Relief Act, regardless of sequestration that may happen in the future.”

A 2011 debt-reduction law required a 2% across-the-board cut to Medicare providers and insurers beginning in January but the year-end fiscal cliff legislation delayed those cuts until March 1.

The recommendation drew immediate praise from a hospital advocate, but Chantal Worzala, director of policy at the American Hospital Association, said the group also continues to dispute that coding-related reductions are needed to recover overcompensation.

The panel also recommended Congress phase out some types of Medicare Advantage insurance plans focused on specific types of patients because they proved unable to achieve the quality improvements desired by the commissioners. They expect better results if most special-needs plans are folded into larger Medicare Advantage plans that are already reaching standards for high quality.

MedPAC later recommended that Medicare rates for ambulatory surgery centers remain unchanged, which was a change from the 0.5% increase recommended by Hackbarth in December. MedPAC members rejected increasing ASCs' rates as part of an attempt to close the reimbursement gap between ASCs and similar hospital settings in favor of basing the rate recommendation on its standard measures of industry-wide supply and demand.

Those providers also should start to submit cost data, the panel urged, similar to the quality data they began giving to the CMS in October 2012.

MedPAC also urged overhauling payment policies for some providers instead of specific pay-rate changes, including physicians, inpatient rehabilitation facilities and home health providers.