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MedPAC’s Annual Report to Congress

By July 20, 2015Commentary

The Medicare Payment Advisory Commission does excellent independent work on issues facing the Medicare program.  Many of its views are summarized in an annual report delivered to Congress; the 2015 version was recently released.  (MedPAC Report)   The report is very lengthy, I will try to highlight a few of the points the Commission emphasized.  Medicare short-stay hospital policies have been a sore spot for medical centers.  The recovery auditors have focused on short inpatient stays as being unnecessary.  These stays had been very profitable for hospitals but they now are having to spend substantial administrative resources challenging the audit findings and they are using more observation stays, which can increase beneficiary cost-sharing.  MedPAC recommended several changes to minimize audit pain and to protect beneficiaries.  Part B drugs, which are generally those administered in a physician office or hospital outpatient setting, are currently reimbursed at ASP plus 6%, which creates incentives for hospitals to use higher cost drugs.  In addition, many hospitals have begun using the 340B program to acquire drugs used on Medicare beneficiaries, and the hospitals make very high profit margins with this tactic.  The Commission recommended several reimbursement changes and suggested exploration of value-based payment methods related to Part B drugs.  The Medicare drug benefit, known as Part D, has a risk-sharing mechanism in it which protects plans from catastrophic level drug spending by a beneficiary and provides some protection against overall much higher or lower drug spending by the Part D plan.  MedPAC noted some market dysfunction that may result from these risk-sharing features and suggested tweaks to the formula.  Hard to understand why CMS doesn’t just abandon its risk protection for these private market plans, which should be able to figure out how to adequately reinsure themselves.  The Commission next looked at the general payment methods for FFS Medicare, Medicare Advantage and ACOs and recommended examination of methods to ensure consistency of policy across those payment mechanisms to keep Medicare’s overall spending as low as possible.  Finally, MedPAC noted the challenges the program will face from the influx of baby-boomers, which will raise the number of beneficiaries from around 54 million today to 80 million in 2013.  This macro feature, which will swamp the program, is what Congress really needs to come to grips with–there is simply no way the country can afford Medicare for that many people, while it is also paying for Medicaid for an equal or larger number.

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