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Medicare Compliance & Reimbursement

Reimbursement:

MedPAC To Recommend Skimpy Or No 2006 Updates For Providers

Published on Wed Jan 26, 2005

Over the past several years, numerous congressional Republicans have grumbled that the Medicare Payment Advisory Commission made too many recommendations that would cost the government more money. As fretting over budget deficits builds this year, those lawmakers should be happy with recommendations the panel voted for at its January meeting.

MedPAC voted Jan 12 to recommend no 2006 pay raises for skilled nursing facilities and home health agencies and a raise for hospitals of 0.4 percentage points less than the projected 2006 price increase of the so-called hospital marketbasket of goods and services. The recommendations will appear in final form in the panel's March 1 report to Congress.

Last month, the panel perused a draft recommendation to offer hospitals a full marketbasket update for 2006, and American Hospital Association Senior Vice President for Policy Carmela Coyle blasted the Commission at day's end Jan. 12 for cutting that back "without a thorough explanation" or an airing of data that led to the apparent change of heart. Despite hospitals' famous political clout in Washington, however, Congress seems likely to welcome MedPAC's cover to offer the lower update, as lawmakers seek any means to rein in swelling deficits.

If Congress follows the Commission, hospitals will get around a 2.9 percent pay hike next year, 0.4 percentage points down from the expected 3.3 percent increase in the marketbasket.

Current law would see hospitals updated by the full marketbasket for 2006. Thus, the recommendation would save between $200 million and $600 million in currently projected spending for 2006 on the inpatient side and between $50 million and $200 million for outpatient services. If Congress adopts the smaller update, it would cut Medicare inpatient spending by between $1 billion and $5 billion over five years, and cut outpatient spending by under $1 billion.

Margins hospitals gained from serving Medicare patients fell to 1.9 percent in 2003, but the cause of margin troubles is largely cost growth, according to the Commission. Many hospitals are experiencing less competition, and private-sector payers generally aren't exerting strong pressure to hold down costs, according to a staff analysis.

Regardless of whose fault it is that costs are burgeoning, however, hospitals in regions with high uninsured rates must rely on Medicare payments. Such facilities could suffer serious harm if updates are low, since they have few private payers to pick up the slack, said panel member Nick Wolter, MD, of Montana's Deaconess Billings Clinic. Montana's uninsured rate is 25 percent, he said.

But Chair Glenn Hackbarth argued that, unless cost growth is slowed, more people will be priced out of private coverage and the number of providers in similar jeopardy will only increase in a vicious spiral. That being the case, "I am reluctant to see Medicare back away" from pressuring providers to adopt efficient practices and strive to contain costs, Hackbarth said.

For HHAs and SNFs, the Commission concluded that beneficiary access is generally good. The number of SNFs serving Medicare remains stable, and at least a few new HHAs actually are entering the program, staffers said. These and other observations of relative stability in Medicare's HHA and SNF sectors back the recommendation that these providers receive no pay raises for 2006.

The number of home health visits per episode of care continues to decline, however, and the panel expressed concern that the home health prospective payment system may be having a perverse unintended consequence. The PPS was implemented because the previous payment system gave HHAs incentives to provide too many services, some Commissioners noted. But the panel and Congress now wonder whether the PPS may be incentivizing HHAs to provide too few visits, especially for the chronically ill.

There's not enough data to settle the question, according to MedPAC staff. But a major overhaul of the PPS is a possibility, and the panel will begin examining the matter this spring.

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