Return to Blog

MEDPAC releases report on Medicare payment policy


Washington, DC, March 14, 2014—

Today, the Medicare Payment Advisory Commission (MedPAC) releases its March 2014 Report to the Congress: Medicare Payment Policy. The report includes MedPAC’s analyses of payment adequacy in fee-for-service (FFS) Medicare and Medicare Advantage (MA), and provides information on the prescription drug benefit, Part D.

Fee-for-service payment rate recommendations. The report presents MedPAC’s recommendations for 2015 rate adjustments in fee-for-service (FFS) Medicare. These “update” recommendations—which MedPAC is required by law to submit each year—are based on an assessment of payment adequacy taking into account beneficiaries’ access to and use of care, the quality of the care they receive, supply of providers, and providers’ costs and Medicare’s payments.

In this year’s report, MedPAC continues to make recommendations to find ways to provide high-quality care for Medicare beneficiaries at lower costs to the program. In light of its payment adequacy analyses, MedPAC recommends no update for 2015 for five fee-for-service payment systems: ambulatory surgical centers, outpatient dialysis, long term care hospitals, inpatient rehabilitation facilities, and hospice. For two sectors, skilled nursing facilities and home health agencies, it reiterates previous recommendations calling for an array of reforms including more equitably distributing payments among providers to ensure access for all beneficiaries, rebasing (lowering the base rate), creating incentives to improve quality, and increasing program integrity. For the physician and other health professional payment system it again calls for repeal of the sustainable growth rate system (SGR), which governs physician fee schedule payments, and for making the system fairer by reducing the disparity in payments to primary care providers and specialists. For inpatient and outpatient hospitals, MedPAC recommended a 3.25 percent update to payment rates, concurrent with two changes that would institute site neutral payments between settings (discussed below).

Examining Medicare’s payments for services provided in different care settings. MedPAC also makes recommendations on improving payment accuracy by examining payment rates for similar types of care frequently provided in different care settings.

Medicare currently makes higher payments for many services provided in the hospital outpatient department, despite the fact that they are often safely provided to similar patients in the physician office setting. In this report, MedPAC recommends reducing hospital payments for 66 groups of services—primarily imaging and tests—to levels equal to or closer to the rates paid in the fee schedule for physician and other health professional services.

Examining care provided to patients in long term care hospitals (LTCHs), MedPAC observed that LTCHs treat many patients whose illness could not be characterized as chronically critically ill—a standard MedPAC believes is the appropriate criteria for costly LTCH-level care. For those non-CCI patients, MedPAC recommended paying LTCHs a rate equivalent to what an acute care hospital would otherwise be paid for the care of that patient. The reductions in spending could then be used to fund an outlier pool for acute care hospitals that do treat costly CCI patients.

Medicare Advantage. In the Medicare Advantage (MA) program, enrollment continues to grow, beneficiaries continue to have wide access to plans (with an average of 10 plans to choose from in 2014), and Medicare’s MA benchmarks and payments to plans have moved closer to FFS levels. This is important because MedPAC has stressed the concept of imposing fiscal pressure on all Medicare providers to improve efficiency and reduce Medicare program costs.

Current law requires the MA benchmarks be reduced over time to bring greater financial neutrality between MA and FFS. As a result, plan bids have come down in relation to FFS spending while enrollment in MA continues to grow. Changes have put pressure on the plan bidding process, and MA plans continue to offer benefit packages that beneficiaries find attractive. However, employer group plans—which do not have to attract enrollees—do not have the same incentives and consequently bid consistently higher than nonemployer plans. In this report, MedPAC recommended a change in Medicare plan policy to bring down payments to employer group plans consistent with the pressures of a competitive process.

MedPAC also recommended a change to include the hospice benefit in the set of services MA plans must offer to enrollees. Currently, when an MA enrollee elects hospice, the beneficiary typically remains in the MA plan, but hospice services are paid for by FFS Medicare. This carve-out of hospice from MA fragments financial responsibility and accountability for care for MA enrollees who elect hospice. Including hospice in the MA benefit package would give plans responsibility for the full continuum of care and promote integrated, coordinated care, consistent with the goals of the MA program.

Part D. Participation in the Medicare drug benefit remains quite high, with about 68 percent of Medicare beneficiaries (over 35 million beneficiaries) enrolled in Part D plans in 2013. The average beneficiary has over 30 stand-alone drug plans to choose from, in addition to many MA plans that have drug benefits. CMS estimated the average monthly premium in 2014 would be $30, though the actual premium paid by individual beneficiaries depends on their selected plan and income level, as well as whether they are subject to Part D’s late enrollment penalty.

A list of recommendations is included in the accompanying fact sheet. The entire report is available online at

Let's partner up

Get in touch
This field is for validation purposes and should be left unchanged.