The Medicare Payment Advisory Commission, as its name suggests, advises Congress and CMS on policies, mostly related to reimbursement, regarding Medicare. Among other things the Commission issues an annual report to Congress giving recommendations on payment for various types of providers and commenting on the status of the program. The 2019 report was recently issued. (MedPAC Report) Policymakers have a very difficult task in regard to government health programs. Spending is growing much more rapidly than the revenue to support that spending. Attempting to cut volume of services or unit prices too drastically can affect access and quality. There is realistically no way out of this long-term conundrum. People are going to have to work longer and their receipt of Medicare and Social Security delayed. We need to find cures for chronic diseases. And people have to bear the consequences of their health behaviors, not pawn those consequences off on the population at large. So all the items discussed in this report are just shorter term modifications that won’t really affect the long-term viability of Medicare, and I suspect the Commission knows that.
But in any event, here are some of those near-term recommendations. In regard to hospital inpatient care, the Commission notes that most hospitals have excess capacity, running at only about 62% bed-day utilization. While average Medicare margins for hospitals are negative, because payment rates are above marginal costs and there is excess capacity, hospitals will continue to seek Medicare patients. Access indicators are positive, hospitals can get capital, and quality seems appropriate. But hospitals, especially in smaller markets, are closing and even the most efficient hospitals have total Medicare margins of around negative 2%. That seems unfair and is likely contributing to commercial price increases. MedPAC recommended a 2% increase in payment rates, which combined with their suggestions for changes to hospital quality improvement programs, would total 3.8% more revenue per stay to hospitals. On the hospital quality incentive or value-based purchasing or whatever new euphemism is being used, the Commission has long noted serious concerns and once again suggests significant changes. The Commission calls its version the Hospital Value Incentive Program and it would replace all existing programs, such as the hospital readmissions reduction penalties. There would be a single, reduced set of measures, adjusted for socio-economic and demographic differences in populations served, which should ease the administrative burden on hospitals and limit some of the unfairness in current programs caused by factors beyond a hospital’s control. Current penalties assessed against hospitals would basically be eliminated, resulting in net revenue improvements.