MedPAC Report to Congress

By March 17, 2020 March 22nd, 2020 Commentary

Every spring the Medicare Payment Advisory Commission sends a report to Congress with recommendations on general Medicare policy and specific payments for the coming year.  This year’s report has been released and we will hop around and highlight a few areas.  (MedPAC Report)   Congress mandated that the Commission take a look at the effects of provider consolidation.  By 2017, most US markets had a single hospital system that represented 50% or more of admissions.  Medicare probably plays no or only a small role in this trend, as it pays hospitals the same regardless of size.  In addition, hospitals have acquired a substantial number of physician practices.  The Commission notes that this trend is driven in part by Medicare, as it pays hospital-owned practices a facility fee.  MedPAC concluded that the evidence demonstrated that greater market power from consolidation resulted in higher hospital margins on non-Medicare patients; that higher non-Medicare patient margins were associated with higher actual hospital costs per discharge, but that the direct relationship between market power and costs per discharge was weak, although the report further stated that the methods being used to assess that relationship were likely inadequate.  All in all, the report suggests that hospitals with market power charge higher prices to commercial payers, and they don’t experience any cost savings from their larger size, in fact, because they have more revenue, they seem to spend more.  The Commission further states that if the gap between commercial and Medicare prices continues to grow, it could lead to a demand for higher Medicare reimbursements.  It also concluded that Medicare and beneficiaries are paying more for physician services at physician practices that have been acquired by a hospital, in some cases substantially more.  And quality was not improved by physician practice acquisition by hospitals.

The Commission was also asked to examine the effect of hospital use of the 340B program and whether there appeared to be any abuses of the original intent of that program.   Because cancer is often treated with infused drugs in hospital outpatient departments, MedPAC looked at several cancer drugs to determine whether there was abuse.  The 340B program was originally intended to allow for deep discounts on medications for poor people, but was very poorly drafted and hospitals are using it to make large profits by buying drugs cheap and charging payers substantially more for them, including for use on patients who are commercially insured and not poor by any definition.  The acceleration in purchase of physician practices has led to greater use of 340B for this profit-making purpose.  The Commission found that the 340B program, as used by hospitals, was leading to higher spending for certain cancers and to purchase of more expensive drugs, which created opportunities for higher dollar profit margins.

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