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CCH® BENEFITS — 03/15/10

Changing Medicare Payment And Medical Care Delivery Methods Necessary To Improve Care Efficiency And Value: MedPAC

from Spencer’s Benefits Reports: “Changing Medicare’s payment methods is essential to improving efficiency and value in health-care delivery,” the Medicare Payment Advisory Commission (MedPAC) concluded in its annual Report to Congress—Medicare Payment Policy. “But such payment reform is unlikely to happen—or at least will not happen as quickly—without steady pressure on the level of prices paid by Medicare as well as attention to the relative values assigned to different services.” According to MedPAC, bundling payments around an “incident of care,” including payment for inpatient hospital, physician, and care after hospital discharge requiring service provider coordination would be an effective way to improve efficiency and value.

MedPAC also emphasized the need to pay for Medicare services based on the quality of care and of the necessity of services. Currently, providers get paid more by providing more services and they are not accountable for quality of care, nor are they given incentives to coordinate care with other providers, MedPAC noted. Furthermore, providers and patients lack the information necessary to assess quality and value. It is important that comparisons of quality must be as accurate and reliable as possible, MedPAC emphasized.

“Each payment reform would attempt to reduce the prevailing incentive to provide more care, especially more complex care,” MedPAC wrote. “In addition, payment reforms strive to reward better coordination of care, especially for patients with complex conditions.”

Without meaningful financing and delivery system reforms, the high rate of health care cost growth will continue, MedPAC warned. Among the major reasons for the significant cost growth is increased use of medical services fostered by insurance and rising prices, as the Congressional Budget Office has reported.

Reform Will Take Time

MedPAC also recognized that comprehensive reform of the Medicare payment system will take some time because it will require testing of new payment systems and reorganization of care delivery methods. Meanwhile, Medicare must carefully manage the current FFS system using the following proposed methods:

• contain high prices for units of service by limiting “unnecessary” fee updates;

• limit and change Medicare’s unit prices by exerting adequate financial pressure on providers to motivate change and redistribute payment from specialty care to certain beneficial primary care services; and

• use Medicare’s relative value payment systems to reward certain high-value services (such as primary care services) and to redesign the delivery system.

To begin to address the problems, MedPAC recommended changes including rewarding providers for improving quality and holding providers accountable for the quality of care Medicare beneficiaries receive and the resources used to provide care.

• Physician services—1% increase but target payment increases for certain primary care services;

• Ambulatory surgical centers—0.6% increase with the requirement that ASCs report cost and quality data to the Centers for Medicare and Medicaid Services; and

• Post-hospitalization care providers (skilled nursing facilities, home health care, inpatient rehabilitation, and long-term hospitals)—no update. For these providers MedPAC further recommended that Medicare implement hospital readmission policies to align provider incentives to share responsibility to avoid unnecessary re-hospitalizations. This would include bundling payment for hospitalizations for certain medical conditions to include post-discharge care.

Spending for the Medicare Advantage program represents 26% of all Medicare spending in 2009 while covering only 24% of beneficiaries. All Medicare beneficiaries paid for the Medicare Advantage program through higher Part B premiums.

For the Medicare Part D prescription drug benefit, the fastest growing cost component is Medicare reinsurance for the highest spending beneficiaries, MedPAC noted. This is partly due to the difficulty in negotiating discounts and rebates for high-cost drugs and biologics with no or few competing treatment alternatives.

MedPAC is an independent congressional agency established to advise the U.S. Congress on issues affecting the Medicare program. In addition to advising the Congress on payments to health plans participating in the Medicare Advantage program and providers in Medicare’s traditional fee-for-service (FFS) program, MedPAC is responsible for analyzing access to care, quality of care, and other issues affecting Medicare. For more information, visit http://www.medpac.gov/documents/Mar10_EntireReport.pdf.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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