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June 21, 2018

MedPAC proposes cuts to freestanding EDs, imaging payments

Daily Briefing

    The Medicare Payment Advisory Commission (MedPAC) on Friday released its annual June report to Congress, includes proposed changes to payments for freestanding EDs and medical devices, as well as other proposals.

    MedPAC's proposal could reduce FSED reimbursement by a third: What you need to know

    The 17-member commission is made up of health policy experts and providers who are tasked with making recommendations to Congress on Medicare payment and policy issues. The recommendations are not binding.

    Report details

    ED services recommendations

    MedPAC in the report recommended Congress tweak payment rates to freestanding EDs "to ensure appropriate access to and use of hospital" ED services, according to a release.

    MedPAC in the report stated that there are two types of freestanding EDs:

    • Off-campus EDs (OCEDs), which are affiliated with hospitals and are eligible for Medicare reimbursements; and
    • Independent freestanding emergency centers, which in some cases are not affiliated with hospitals and therefore are not eligible for Medicare reimbursements.

    Currently, Medicare uses two different payment rates for EDs:

    • Type A payment rates, which apply to hospital EDs open 24 hours per day and seven days per week; and
    • Type B payment rates, which apply to EDs open fewer than 24 hours per day and seven days per week.

    According to MedPAC, Type B payments rates in 2018 are about 30% lower than Type A rates. MedPAC in the report said OCEDs typically receive the Type A payment rate, and that higher payment rate has driven a "proliferation" of OCEDs in some urban areas, according to the release.

    To address the issue, MedPAC recommended bringing OCED payment rates more in line with Type B payment rates for IFECs. Specifically, MedPAC said Congress should consider reducing Type A payment rates by 30% for OCEDs that are located in urban areas and are fewer than six miles from an on-campus ED. Such a change would better align payments with cost, reduce Medicare's payments, generate savings for Medicare beneficiaries, and address the "oversupply" of standalone EDs in urban areas, MedPAC said.

    MedPAC recommended that Congress exempt from the change urban OCEDs that are located farther than six miles from on-campus EDs. MedPAC said Congress should consider other exemptions as well, including cases in which a freestanding ED's parent hospital is closing.

    MedPAC also recommended that Congress consider creating a new payment model that aims to bolster access to ED services in rural areas. Currently, Medicare pays a facility for ED services only if the facility maintains inpatient services—which means rural hospitals in small communities have a heavy incentive to maintain inpatient services, despite seeing a dramatic decline in inpatient volumes, MedPage Today reports.

    As an alternative approach, MedPAC recommended that Congress create a voluntary payment model under which Medicare can pay for ED services at outpatient-only hospitals. The payment model would apply to facilities in rural areas located more than 35 miles from another ED. Full-service hospitals in rural areas that choose to become outpatient-only hospitals would receive the same standard payment rates as a full-service hospitals for ED visits.

    MedPAC Executive Director Jim Matthews said Medicare would pay the outpatient-only hospitals an annual "fixed block subsidy" to help the facilities with fixed operation costs. "This would allow these facilities to shed the unprofitable inpatient line of business, while still maintaining access to vital emergency services in their communities," Matthews said. He noted that hospitals could choose to convert back to full-service status "if that was a community need and they were financially able to do so."

    Medicare coverage policy recommendations

    MedPAC in the report also reviewed processes in Medicare fee-for-service (FFS), Medicare Advantage, and Medicare Part D and determined that FFS does not do enough to prevent beneficiaries from using low-value health care services. In particular, MedPAC in the report said FFS' "coverage policies often are based on little evidence and usually do not include an explicit consideration of a service's cost-effectiveness or value relative to existing treatment options."

    MedPAC in the report described six tools Medicare FFS could use to lessen the use of low-value care:

    • Connecting information about comparative clinical effectiveness and cost-effectiveness to FFS coverage and payment policies;
    • Expanding the use of prior authorization;
    • Establishing payment models designed to hold health care providers accountable for costs and quality of care;
    • Implementing clinical decision support tools and provider education;
    • Raising cost-sharing for low-value services; and
    • Reexamining coverage determinations on an ongoing basis.

    Fee schedule recommendations

    MedPAC did not provide direct recommendations for rebalancing Medicare's physician fee schedule, but it described an approach to doing so by increasing payment rates for evaluation and management (E&M) services by 10%, while decreasing payment rates for other services—such as imaging, procedures, and tests—by 3.8%. Overall, the proposed increase would raise annual spending for ambulatory E&M services by $2.4 billion, MedPAC said. MedPAC in the report noted that payment rates for procedures, imaging, and tests are artificially high, which results in Medicare paying less for E&M services that should receive higher payments.

    According to the report, endocrinologists, family physicians, and rheumatologists likely would see "the highest proportional increase in payments" under the proposed change, equaling about a 5% to 7% increase. Diagnosticians, occupational therapists, pathologists, physical therapists, and radiologists likely would see significant cuts in payment because they offer fewer ambulatory E&M services, MedPAC said.

    Medical device payment recommendations

    MedPAC also explored expanding competitive bidding for more medical devices to improve Medicare's payment policies for durable medical equipment, prosthetic devices, prosthetics, orthotics, and supplies (DMEPOS) and reduce fraud.

    Specifically, MedPAC recommended that CMS consider adding three categories of products to Medicare's competitive bidding program:

    • Certain items that MedPAC is uncertain of whether CMS has the authority to include in the competitive bidding program but could be worth pursuing, including tracheostomy and urological supplies;
    • Items Congress already has authorized to be part of the program, including chest wall oscillation devices, ventilators, and off-the-shelf orthotics; and
    • Some products that Congress has prohibited from being included in the program, such as bone growth stimulators.

    MedPAC in the report also recommended that Congress "consider capping balance billing and reducing the allowed fee schedule amount by 5% for nonparticipating DMEPOS suppliers." For example, MedPAC said, "The balance billing cap could be set equal to the physician fee schedule cap—115%—or somewhat higher (e.g., 125%—to the extent policymakers want to allow for added flexibility."

    HRRP assessment

    MedPAC in the report also assessed CMS' Hospital Readmissions Reduction Program (HRRP), as mandated under the 21st Century Cures Act.

    MedPAC concluded that HRRP helped significantly reduce hospitals' readmissions rates without having "an adverse effect on mortality rates." MedPAC also found that the reduction in readmission rates led to a slight rise in ED visits and observation stays—which increased "at a slightly faster rate" after HRRP's introduction, but was "fairly small."

    Overall, MedPAC said HRRP led to fewer Medicare beneficiaries returning to the hospital and generated about $2 billion per year in Medicare savings (Gooch, Becker's Hospital CFO Report, 6/18; Firth, MedPage Today, 6/15; Bachenheimer, HomeCare Magazine, 6/17; Beaulieu, HME News, 6/18; Holly, Home Health Care News, 6/18; MedPAC release, 6/15).

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