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MedPAC’s Annual Report to Congress

By April 30, 2014Commentary

Now begins the Herculean task of distilling the annual report that the Medicare Payment Commission delivers every spring with recommendations for changes to Medicare reimbursements to various provider types.  This distillation will cover a couple of posts and today we focus on hospital and physician payments.  (MedPAC Report)   MedPAC’s summary of the status of the hospital market is that in 2012 Medicare paid hospitals $166 billion for 10.4 million inpatient admissions and 190 million outpatient visits.  Per beneficiary use has declined.  Hospitals have an overall negative margin on Medicare reimbursements, estimated by the Commission to be minus 6% in 2014.  There is a small set of more efficient hospitals that have a 2% positive Medicare margin, but with scheduled reductions, MedPAC acknowledges that even these may have negative margins in 2015.  There should be no mistaking the fact that when a hospital has a negative Medicare margin, and Medicare is a large payer for most hospitals, they have to make that up somewhere else or go bankrupt eventually.  The only somewhere else is commercial health plan business.  MedPAC recommended a 3.25% increase in hospital payments for 2015, perhaps because of concerns about the margin impact.  Importantly, the Commission also recommends that reimbursement be equalized between treatments rendered in a hospital outpatient setting and other settings, like a physician’s office.  Now, hospital outpatient sometimes is paid at twice the rate for the same service.  This has incented hospitals to buy physician practices just to see a revenue increase.   The Commission perceives that hospital quality is generally improving.

For physician and other outpatient services, MedPAC first noted that in 2012, $70 billion was spent for 850,000 outpatient professionals’ services, including 550,000 doctors.  As it has for years, the Commission begged for a final solution to the SGR problem, repealing the formula and replacing it with a different payment approach.  Congress got close this year, but once again just did a one-year fix.  Access to services was found to be stable, while use on a per beneficiary basis was flat to slightly down.  The Commission finds little change in overall quality of ambulatory services, with some measures up slightly, most unchanged, and some slightly worse.  In regard to ambulatory surgery centers, there are about 5,350 of them which in 2012 served 3.4 million Medicare beneficiaries at a cost to the program of $3.6 billion.  Grow in utilization is still growing but has slowed significantly in recent years.  The Report finds that payment appears to be adequate and therefore recommended that there be no change in 2015 reimbursements from those in 2014.  Tomorrow–Medicare Advantage and Part D.


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