President's Budget Request Seeks Savings By Aligning Post-Acute Medicare Payments

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By Nathaniel Weixel  

March 5 --The Obama administration's fiscal year 2015 budget request aims to achieve savings by aligning Medicare payments for the same sets of post-acute care services across different locations, as well as by reducing payment increases for certain post-acute care providers, but stakeholder groups say savings would come at the expense of patients.

The proposal, released March 4, includes about $400 billion in cuts to Medicare. The request mirrors the FY 2014 budget proposal in that most of the savings would come from reductions to providers--specifically, post-acute care (PAC) providers.

Among other proposals, the budget would require a $100 per-episode copayment for seniors using home health services and bundle certain post-acute care services beginning in 2019, including services from long-term care hospitals, inpatient rehabilitation facilities (IRFs), skilled nursing facilities (SNFs) and home health providers. The proposal is intended to save $8.7 billion over 10 years.

The budget's proposals include adjusting payment updates for certain post-acute care providers and equalizing payments for certain conditions commonly treated in IRFs and SNFs.

Under the current payment system, Medicare and the beneficiary pay different amounts for the same service, depending on which post-acute care sector the beneficiary chooses. For example, upon leaving a hospital, patients with joint replacements might have home health care or outpatient therapy or go to a skilled nursing facility or an inpatient rehabilitation facility, and Medicare payments (and beneficiary cost sharing) differ widely as a result.

The administration's proposal would reduce IRF payments for care for hip and knee replacements, hip fractures and certain pulmonary diseases. The budget says Medicare pays significantly more for those conditions in IRFs than it does in SNFs.

Under the proposal, payments would be reduced beginning in 2015, to “improve financial incentives to encourage efficient and appropriate provision of care by reducing the disparity in Medicare payments between the settings.”

VBP Programs

The proposed budget also would implement a budget-neutral, value-based purchasing (VBP) program for several additional provider types, including SNFs, home health agencies, ambulatory surgical centers and hospital outpatient departments, beginning in 2016. At least 2 percent of payments must be tied to the quality and efficiency of care, the proposal said.

The Affordable Care Act created a VBP program for hospitals that took effect in October 2012. It is meant to provide incentives for hospitals to shift from volume-based to quality-based care.

The proposal also would adjust the standard for classifying a facility as an IRF. Currently, at least 60 percent of patient cases admitted to an IRF must meet one or more of 13 designated severity conditions. This standard was changed to 60 percent from 75 percent in the Medicare, Medicaid, and SCHIP Extension Act of 2007.

The budget proposal would reinstitute the 75 percent standard beginning in 2015, “to ensure that health facilities are classified appropriately based on the patients they serve,” the budget said.

Payment Cuts, IPAB

In its March 2013 report to Congress, the Medicare Payment Advisory Commission (MedPAC) reiterated recommendations from 2012 and recommended eliminating payment updates for SNFs, IRFs, home health facilities and long-term care hospitals in FY 2014, because Medicare payments significantly exceeded the cost of patient care, resulting in high Medicare margins.

The budget proposal would implement and build on that recommendation and gradually realign payments with costs. This proposal reduces marketbasket updates for IRFs, long-term care hospitals and home health agencies by 1.1 percentage points in 2015 through 2024.

SNFs would see payment rates cut even more, in an attempt to reduce avoidable hospital readmissions. Under the budget proposal, SNFs would see payment reduced by 2.5 percent in FY 2015, tapering down to 0.97 percent in FY 2022.

The budget proposal also includes a provision for strengthening the Independent Payment Advisory Board (IPAB). IPAB, a 15-member board appointed by the president in consultation with congressional leaders, is supposed to recommend ways to save Medicare costs if per capita Medicare spending rises above specified levels. The Affordable Care Act created IPAB.

The budget proposed to strengthen IPAB by lowering the target rate for triggering its recommendations to Congress.

However, in recent years, the rate of Medicare spending increases has dropped, and President Barack Obama has yet to name any members to IPAB. The fiscal year 2014 appropriations bill enacted by Congress and signed into law by Obama in January called for eliminating $10 million for IPAB operating funds.

Post-Acute Providers React

Post-acute care stakeholder groups reacted negatively to the administration's' budget proposals.

Mark Parkinson, president and chief executive officer of the American Health Care Association and the National Center for Assisted Living (AHCA/NCAL), said his group was disappointed once again to be the target of potential payment cuts.

“The long term and post-acute care profession has endured billions in cuts over the last several years. Unfortunately, the President's latest budget contains billions more in Medicare cuts that would jeopardize our ability to continue to provide access to quality care,” Parkinson said March 4 in a statement. “The math doesn't add up, especially when the Medicare Payment Advisory Commission (MedPAC) concluded that overall margins for the skilled nursing profession are only 1.8 percent.”

However, Parkinson said the group supports the proposed budget's approach to PAC-only bundles. He said the group also supports the president's proposal for payment equalization for certain conditions treated in both IRFs and SNFs.

The Partnership for Quality Home Healthcare, a coalition of leading home health providers, also strongly advocates against further cuts to Medicare home health funding, as well as the re-imposition of a copayment on Medicare home health beneficiaries.

“In light of data demonstrating the vulnerability of Medicare home health beneficiaries, the proposed budget is of great concern,” the group's chief executive officer, Eric Berger, said March 4. “Forcing further cuts or a copayment onto this population could make it impossible for many to continue receiving care in the setting they prefer--their home.”

The partnership urged the administration and Congress to enact program integrity reforms “that specifically target the isolated nature of home health fraud and abuse, rather than imposing across-the-board cuts and copayments that target innocent seniors.”

Bad Debt, GME

The budget proposal also would reduce bad-debt payments to providers, including hospitals, by $30.8 billion.

For most institutional provider types, the budget proposal said, Medicare reimburses 65 percent of bad debts resulting from beneficiaries' nonpayment of deductibles and coinsurance after providers have made reasonable efforts to collect the unpaid amounts.

Starting in 2015, the budget proposal would reduce bad debt payments to 25 percent over three years for all providers that receive bad-debt payments. The proposal would align more closely Medicare policy with private payers, which don't typically reimburse for bad debt.

The budget also proposed cuts to payments to teaching hospitals for doctor training. It said existing Medicare add-on payments to teaching hospitals for the indirect costs of medical education “significantly exceed the actual added patient care costs these hospitals incur.”

The proposal would reduce those payments by 10 percent, beginning in 2015. In addition, the secretary of health and human services would be granted authority to set standards for teaching hospitals receiving graduate medical education payments. Additionally, funding for the Children's Hospitals Graduate Medical Education Payment Program would be eliminated, down from its current level of $265 million; however, it would receive $100 million funded by Medicare GME cuts.

The Association of American Medical Colleges said it was “deeply concerned” by the proposal.

“At a time when the nation's growing aging population is creating an urgent need for new physicians, this budget represents a nearly $15 billion reduction in payments to teaching hospitals for doctor training and complex patient care,” AAMC President and CEO Darrell G. Kirch said March 5.

“The administration's proposed cuts,” he added, “would undermine the ability of teaching hospitals to train the next generation of doctors at a time when the AAMC estimates a shortage of 90,000 physicians--split evenly between primary care and specialty doctors--by the end of the decade.”

Medical Imaging, Labs

The proposal also would cut Medicare payments for advanced imaging services.

The American College of Radiology March 4 said it opposed the inclusion of prior authorization for imaging services.

“Radiology benefits managers and prior authorization programs take medical decisions out of doctors' hands, may delay or deny lifesaving imaging, and often result in longer waiting times for patients to receive care,” Paul H. Ellenbogen, chairman of the ACR Board of Chancellors, said.

The American Clinical Laboratory Association (ACLA) March 4 said it opposed the “drastic funding cuts that would compromise the continued delivery of high quality clinical lab services to Medicare beneficiaries.”

The ACLA urged congressional budget leaders to oppose provisions that would reduce reimbursement for clinical laboratory services for Medicare beneficiaries by an additional $7.9 billion over 10 years, amounting to an overall 14 percent funding reduction.

However, the ACLA praised a provision recommending the removal of anatomic pathology (AP) from the Medicare in-office ancillary services (IOAS) exception to the self-referral law.


To contact the reporter on this story: Nathaniel Weixel in Washington at

To contact the editor responsible for this story: Brian Broderick at

The budget is at