Medicare Payment Policy

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Act, the EHR Incentive Program also includes a nearly equivalent Medicaid EHR Incentive Program, with its own set of provider eligibility criteria and incentive payment amounts. 12 Changes to Medicare DsH policy in 2014 will eventually lower Medicare payments to hospitals In 2011, Medicare paid roughly $11 billion in DSH payments to IPPS hospitals, which represents 7 percent of all Medicare payments to short-term ACHs. DSH payments are supplementary inpatient payments given to hospitals with high shares of low-income patients. For purposes of computing DSH payments, the low-income patient share is defined as the sum of two ratios: the share of Medicare patients on Supplemental Security Income (SSI) plus the share of Medicaid days relative to all inpatient days. The original justification for Medicare DSH payments was that low-income Medicare patients were thought to be more expensive in ways that were not accounted for by the original DRG system. By 2011, the Commission and other researchers concluded that, at most, 25 percent of the DSH payments were empirically justified by the higher Medicare costs at hospitals treating low-income patients (Medicare Payment Advisory Commission 2007a, Nguyen and Sheingold 2011). Some have argued that DSH payments should continue in order to assist hospitals that serve low-income patients because of their higher non-Medicare uncompensated care burdens. However, in 2007 the Commission noted that DSH payments were not well targeted at hospitals with high uncompensated care costs (Medicare Payment Advisory Commission 2007a). Because at most 25 percent of DSH payments were empirically justified as covering higher Medicare costs and DSH payments were poorly targeted at hospitals with high uncompensated care costs, the Congress made several changes in the DSH payments as part of PPACA. The key changes scheduled to take place in fiscal year 2014 are: • DSH payments will be reduced to 25 percent of what they would have been under prior DSH formulas. • The remaining 75 percent of the pool of DSH dollars will be divided into two parts: • One part will be used to create a pool of dollars to pay for uncompensated care at hospitals. We expect CMS to define uncompensated care as non-Medicare bad debts and charity care, as in 62 Hospital inpatient and outpatient services: Assessing payment adequacy and updating payments current Medicare cost reports. Each hospital will receive a share of the uncompensated care pool proportionate to its share of all IPPS hospitals’ uncompensated care costs. • The remainder of the DSH pool will be retained by the Medicare trust fund as savings. For every 1 percent decline in the rate of uninsurance among those under 65 years of age, the share of the DSH pool allocated to uncompensated care will decline by 1 percent, and that decline will be retained by the Medicare program. • The amount of uncompensated care is expected to decline as the subsidized insurance exchanges become operational in 2014 and states expand Medicaid eligibility. The change in aggregate Medicare payments to hospitals from new DSH payments and payments from the uncompensated care pool will depend on two key factors. First, PPACA will expand eligibility for Medicaid in 2014, which will result in a larger DSH pool. The Congressional Budget Office (CBO) has estimated that Medicaid enrollment will expand by roughly 20 percent under PPACA. 13 If this estimate holds, Medicaid inpatient days are expected to expand by roughly 20 percent. 14 The expansion of Medicaid days will result in a larger pool of DSH dollars because DSH is based on the share of Medicare patients on SSI plus the share of non-Medicare inpatient days that are Medicaid days. Second, the rate of uninsurance is expected to decline, which will shrink the share of the DSH pool allocated to uncompensated care and will increase the savings for the trust fund. The current policy is designed to decrease Medicare payments to hospitals for uncompensated care as the number of uninsured declines. As more people gain insurance through expanded Medicaid coverage or through the exchanges, the amount of money available for uncompensated care payments to hospitals declines. It is difficult to predict the net change in Medicare payment to hospitals from these two factors (decreasing DSH payments and increasing uncompensated care payments) because of factors that introduce uncertainty into the computation. For example, some states may not expand their Medicaid eligibility, and the share of low-income individuals who will use the exchanges is uncertain. For these reasons, we have conducted a sensitivity analysis of how DSH payments will change with changes in Medicaid enrollment and the uninsured.
FIguRe FIGURE 3–9 3-8 Given a 20 percent increase in Medicaid enrollment and a 25 percent decline in the rate of the uninsured (as CBO estimated for 2014), we estimate that the net amount of payments to hospitals under the DSH and uncompensated care policies would decline by about $0.44 billion in 2014 (Figure 3-9). 15 In the future, if the insurance exchanges are successful and more people become insured, payments will decline Illustration of DsH payment changes under new 2014 DSH payment payment.... policy Note: DSH (disproportionate share hospital). Computations were made using 2011 Medicare payment rates and 2011 cases to isolate the effect of policy changes. Source: MedPAC simulation using Congressional Budget Office estimates of the rate of uninsurance. Note: In InDesign. New DSH 25% of new pool 25% × $13 billion $3.25 billion Key assumptions: • A 20 percent increase in Medicaid patients and inpatient days • A 25 percent decline in the rate of uninsured DSH/uncompensated care payments to hospitals $10.56 billion Medicare operating DSH before Medicaid expansion $11 billion Medicaid expansion DSH/uncompensated care pool after Medicaid expansion $13 billion Uncompensated care pool 75% of new pool (75% × $13 billion) $9.75 billion Uncompensated care payments $9.75 billion × (100%–25% decline in uninsured) $7.31 billion Net effects on hospital payments under illustrative scenario • Starting level of DSH payments $11 billion • +$2 billion in payments due to 20 percent expansion of Medicaid • –$2.44 billion in payments due to 25 percent reduction in uninsured • Projected $10.56 billion in DSH/uncompensated care payments to hospitals • If the rate of uninsurance declines further, payments will decline further. Savings for the Medicare trust fund $9.75 billion × 25% decline in uninsured $2.44 billion significantly. For example, if Medicaid enrollment expanded by 25 percent and the number of uninsured individuals fell by 50 percent (as CBO estimated for 2017), the pool of dollars going to hospitals would decline by roughly $2.3 billion, or 1.5 percent of all Medicare payments. In general, as the rate of the uninsured declines, Medicare payments for uncompensated care will decline. We expect hospitals’ uncompensated care costs to decline Report to the Congress: Medicare Payment Policy | March 2013 63
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RepoRt to the CongRess Medicare Pay
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RepoRt to tHe CongRess Medicare Pay
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with the structure of the payment s
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table of contents Acknowledgments .
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executive summary
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of services—and pressure on feder
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current Medicare payments are adequ
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outpatient dialysis services Outpat
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some facilities are willing to acce
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coverage for conventional treatment
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of care for these conditions should
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Context for Medicare payment policy
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4 Context for Medicare payment poli
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FIguRe FIGURE 1-2 1-2 12% Out of po
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the level of health care spending a
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1-4 FIguRe 1-4 140 120 100 80 60 Do
Page 38 and 39: FIguRe 1-6 1-6 Growth rate (in perc
Page 40 and 41: FIGURE FIguRe Share of GDP (in perc
Page 42 and 43: Share of GDP (in percent) FIGURE 1-
Page 44 and 45: FIGURE FIguRe 1-10 1-10 8% African
Page 46 and 47: FIguRe 1-12 1-11 1800 1600 1400 120
Page 48 and 49: Americans than for other racial and
Page 50 and 51: References Agency for Healthcare Re
Page 52 and 53: Medicare Payment Advisory Commissio
Page 55 and 56: Assessing payment adequacy and upda
Page 57 and 58: The goal of Medicare payment policy
Page 59 and 60: may go up when payment rates go dow
Page 61 and 62: hospitals and that hospitals shift
Page 63 and 64: individual payment systems but also
Page 65 and 66: Hospital inpatient and outpatient s
Page 67 and 68: Hospital inpatient and outpatient s
Page 69: covered the fully allocated costs o
Page 72 and 73: 3-1 3-1 FIguRe 100 80 60 40 Number
Page 74 and 75: Visits or claims per 1,000 benefici
Page 76 and 77: 3-4 3-4 FIguRe 2012 dollars (in bil
Page 78 and 79: of physicians employed directly by
Page 80 and 81: FIguRe FIGURE Annual percent change
Page 82 and 83: FIGURE FIguRe Margin (in percent) 3
Page 84 and 85: FIGURE FIguRe Margin (in percent) 3
Page 86 and 87: tABLe 3-5 performance of efficient
Page 90 and 91: as Medicaid expands, the new insura
Page 92 and 93: ates for separately paid drugs resu
Page 94 and 95: endnotes 1 From 2002 to 2011, 479 h
Page 96 and 97: References Agency for Healthcare Re
Page 99 and 100: C H A p t e R4 physician and other
Page 101 and 102: physician and other health professi
Page 103: from the SGR system in its October
Page 106 and 107: 4-1 4-1 FIguRe 40 35 30 25 20 15 10
Page 108 and 109: tABLe 4-1 Most aged Medicare benefi
Page 110 and 111: tABLe 4-2 Medicare beneficiaries ha
Page 112 and 113: payment adjustments for health prof
Page 114 and 115: tABLe 4-3 Year physicians primary c
Page 116 and 117: provider’s characteristics, geogr
Page 118 and 119: tABLe 4-4 type of service Change in
Page 120 and 121: tABLe 4-5 type of imaging Change in
Page 122 and 123: the patient-centered medical home T
Page 124 and 125: FIguRe FIGURE Cumulative percent ch
Page 126 and 127: References ABIM Foundation. 2012. C
Page 129 and 130: Ambulatory surgical center services
Page 131 and 132: Ambulatory surgical center services
Page 133 and 134: Background An ambulatory surgical c
Page 135 and 136: Differences in types of patients tr
Page 137 and 138: Differences in types of patients tr
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number of services grew from 2006 t
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tABLe 5-7 rapidly than nonowning ph
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Creating a value-based purchasing p
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Revisiting the ambulatory surgical
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endnotes 1 Because CMS updates paym
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Medicare Payment Advisory Commissio
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R e C o M M e n D A t I o n 6 The C
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128 Outpatient dialysis services: A
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tABLe 6-1 Characteristics of FFs di
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Physicians Association has publishe
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tABLe 6-3 Increasing number and cap
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Number of FFS dialysis beneficiarie
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FIguRe 6-3 Percent of dialysis bene
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and 2011, the proportion of adult h
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anticipated under the modernized pa
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endnotes 1 In this chapter, we use
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References ABIM Foundation. 2012. C
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C H A p t e R7 post-acute care prov
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encourages more 60-day episodes. Fu
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C H A p t e R8 skilled nursing faci
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skilled nursing facility services C
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adjust for differences in patients
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Description of beneficiaries who us
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snF prospective payment system and
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Number of SNFs FIguRe FIGURE 8-1 7-
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FIGURE FIguRe Percent 7-2 8-2 30 25
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and other SNF users were essentiall
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FIguRe FIGURE Program spending (in
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7-8 8-6 FIguRe 30 25 20 15 10 Medic
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(e.g., whether there is a requireme
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the Commission’s 2012 update reco
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tABLe 8-9 non-Medicare margins were
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found to be associated with one or
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Smith, V. K., K. Gifford, E. Ellis,
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R e C o M M e n D A t I o n s (The
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188 Home health care services: Asse
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tABLe 9-1 use and growth of home he
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FIGURE FIguRe Number of new agencie
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tABLe 9-2 of services. The review a
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tABLe 9-4 Community-admitted home h
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tABLe 9-5 type of county Claims dat
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tABLe 9-6 state County are collecte
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tABLe 9-8 Medicare margins for free
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tABLe 9-11 provider characteristics
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tABLe 9-12 Medicare visits per full
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strengthening incentives for effect
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endnotes 1 The exceptions pertain t
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C H A p t e R10 Inpatient rehabilit
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Inpatient rehabilitation facility s
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FIguRe FIGURE 10-1 9-1 Note: IRF (i
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Medicare IRF classification require
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tABLe 10-2 type of IRF 2004 2005 20
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tABLe 10-4 number of IRF beds decre
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weight for compliant cases was 1.39
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unobserved factors regarding patien
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freestanding IRFs were about $4,340
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increase for changes in the outlier
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References Centers for Medicare & M
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R e C o M M e n D A t I o n 11 The
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Quality of care—LTCHs only recent
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FIguRe FIGURE 11-1 10-1 Source: Med
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short-stay outlier cases in long-te
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tABLe 11-1 growth in the number of
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Chronically critically ill benefici
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Quality measures for long-term care
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tABLe 11-4 type of LtCH per case pa
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temporary legislative relief from s
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16 We observed growth over time in
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Durairaj, L., J. C. Torner, E. A. C
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Hospice services C H A p t e R12
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Hospice services Chapter summary Th
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Background Medicare began offering
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March 2009 Commission recommendatio
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March 2009 Commission recommendatio
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number peaking in 2009). With rapid
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tABLe 12-4 Hospice use has increase
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tABLe 12-5 Characteristic insurers
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three settings, respectively) (Tabl
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measures, it is likely that the vas
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tABLe 12-10 Category percentage poi
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• additional wage index changes,
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elieve the cost report data provide
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C H A p t e R13 the Medicare Advant
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288 The Medicare Advantage program:
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The Medicare Advantage (MA) program
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enchmark. If a plan’s bid is abov
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tABLe 13-3 projected payments excee
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We broke the fourth quartile into t
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tABLe 13-5 Distribution of enrollme
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tABLe 13-6 examples of measures inc
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tABLe 13-7 Between 2011 and 2012, l
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tABLe 13-9 admission-weighted ratio
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ecommended that payments be brought
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eport HEDIS measures based on admin
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C H A p t e R14 Medicare Advantage
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Medicare Advantage special needs pl
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integrating Medicaid benefits. We f
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tABLe 14-1 Distribution of snp enro
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previous Commission recommendations
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tABLe 14-4 Readmission rates by typ
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There has been recent movement in t
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of the quality measures that only S
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Separate appeals and grievances pro
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References Government Accountabilit
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status report on part D Chapter sum
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controlling growth in drug spending
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tABLe 15-2 and pharmacists who part
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Characteristics of Medicare benefic
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tABLe 15-6 Distribution of enrollme
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FIGURE FIguRe Percent of all Part D
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3). Most regions continue to have m
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tABLe 15-9 • Reinsurance—Medica
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tABLe 15-11 toward the OOP threshol
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tABLe 15-12 Cost-sharing amounts fo
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tABLe 15-14 enrollees—by about $9
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Drug price index equal to 1.0 at th
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Voluntary switchers Each year, Part
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endnotes 1 PPACA eliminates the cov
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References Boards of Trustees, Fede
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Commissioners’ voting on recommen
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Chapter 12: Hospice services The Co
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A p p e n D I X Moving forward from
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well as the cost of temporary repri
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payments rates be frozen at their c
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than primary care physicians (class
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achieving a total estimated 10-year
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would be costly, too, and they are
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payment accuracy. For example, such
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Final regulations on the ACO progra
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statemen nt of MedPAC’s position
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Cumulative percent change 70 7 60 6
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390 Moving forward from the sustain
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Note: The availability and scoring
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Acronyms AAgR average annual growth
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op outpatient opD hospital outpatie
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Commission members glenn M. Hackbar
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a state society of the National Med
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on the Advocate Physician Partners
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425 eye street, nW • suite 701
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Medicare Payment Policy

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