In Report, MedPAC Recommends Lower Payments for Inpatient Rehab Facilities

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By Michael D. Williamson and Mindy Yochelson

March 13 — A congressional advisory panel March 13 recommended site-neutral Medicare payments for certain select conditions at skilled nursing facilities and inpatient rehabilitation facilities.

The recommendation, in the Medicare Payment Advisory Commission's March 2015 Report to Congress, called on lawmakers to direct the Department of Health and Human Services to eliminate the differences in payment rates between inpatient rehabilitation facilities (IRFs) and skilled nursing facilities for 22 selected conditions.

If enacted, the recommendation would lead to reduced payments at IRFs. However, the reductions to IRF payments should be phased in over three years, the report said.

A group representing IRFs issued a statement opposing the site-neutral recommendation. The recommendation “is based on a mistaken belief that rehabilitation hospitals and nursing homes provide comparable care and produce comparable outcomes,” the American Medical Rehabilitation Providers Association’s (AMRPA) chairman, Bruce Gans, said in a March 13 statement.

In the area of physician payment, the commission said Congress should repeal the sustainable growth rate (SGR) system and replace it with a 10-year path of statutory fee-schedule updates.

MedPAC also called for lawmakers to establish a prospective per beneficiary payment to replace the Primary Care Incentive Payment program (PCIP) after it expires at the end of 2015.

Other Providers 

In addition, the report contains calendar year 2016 payment rate recommendations for ambulatory surgical center services, outpatient dialysis services, hospice services, IRF services and long-term care hospital services, among others.

The IRF services draft recommendation assumes that the current payment policy continues—that is, a site-neutral payment policy isn't adopted. Under several of the recommendations from MedPAC, ambulatory surgical centers, outpatient dialysis, IRFs, long-term care hospitals and hospice providers wouldn't see pay increases or updates in CY 2016.

The report also includes a recommendation to reduce or eliminate differences in payment rates between outpatient departments and physician offices for selected ambulatory services, a March 13 MedPAC fact sheet said.

Commissioners approved the recommendations outlined in the report during a January meeting.

Site-Neutral Payments and Patients 

In the AMRPA's statement, Gans said, “MedPAC’s site-neutral payment recommendation could put vulnerable patients at risk of being diverted from the coordinated, intensive inpatient care provided by medical rehabilitation hospitals and units to less regulated care provided in nursing homes.”

MedPAC “[s]eemingly ignored” research that shows patients have better survival rates and outcomes when treated in rehabilitation hospitals rather than nursing homes, Gans said, adding, “In fact, not only do patients live longer, they go home sooner and have fewer hospital readmissions.”

When MedPAC developed its site-neutral recommendation, it “ made a number of assumptions we dispute,” the AMRPA statement said. The group has issued an undated document that summarizes its concerns.

In addition, Rochelle Archuleta, a director of policy at the American Hospital Association (AHA), told Bloomberg BNA in a March 13 e-mail that the site-neutral recommendation is a “misguided proposal that would limit access to care for Medicare patients who have medical needs that can be met only in IRFs.

Likewise, in a March 13 statement, the Coalition to Preserve Rehabilitation (CPR), which represents leading consumer, disability and clinician organizations, expressed concern over the recommendation to adopt site-neutral payments.

However, at a March 13 press conference, MedPAC staff emphasized that the IRF-SNF site-neutral payment recommendation is a continuation of what commissioners have recommended for acute services.

Under the recommendation, IRFs would still get certain add-on payments and regulatory relief, Mark Miller, MedPAC's executive director, said. The recommendation would give IRFs “greater flexibility” to adjust costs, he said.

Miller also told the press conference that the recommendation has attracted opposition from many groups. In particular, AMRPA is “very unhappy” about it, he said.

Home Health Agencies 

MedPAC's recommendations call for payments to home health agencies (HHAs) to be rebased. In MedPAC's vocabulary, rebasing means a reduction, Miller said at the press conference.

MedPAC first included the recommendation to rebase the HHA payments in its March 2011 report. The recommendation in the March 2015 report repeats the one made in 2011.

The March 2011 recommendation urged Congress to direct the Department of Health and Human Services to begin a two-year rebasing of home health rates in 2013 and eliminate the marketbasket update for 2012.

“For more than a decade, payments [to the HHAs] have consistently and substantially exceeded costs in the home health prospect payment system,” the report said.

“Two factors have contributed to payments exceeding costs,” the report said: “Fewer visits are delivered in an episode than is assumed in Medicare’s rates, and cost growth has been lower than the annual payment updates for home health care.”

Although the Affordable Care Act has implemented some payment reductions to the HHA, they are offset by the annual payment update, the report said. The commission's recommendation would reduce payments to the HHAs more than required by the ACA.

“This recommendation would reduce spending for Medicare services by $250 million to $750 million in 2016 and $5 to $10 billion over five years,” the report said.

SNF Rebasing 

Additionally, the report calls for rebasing payments to skilled nursing facilities.

MedPAC first included the recommendation to rebase the SNF payments in its March 2012 report. The recommendation in the March 2015 report repeats the one made in 2012 but is updated “for implementation three years later.”

Under the reiterated recommendation, MedPAC specified that Congress should eliminate the marketbasket update and direct the HHS secretary to revise the prospective payment system for SNFs for 2016.

Rebasing payments should begin in 2017, with an initial reduction of 4 percent and subsequent reductions over an appropriate transition until Medicare's payments are better aligned with providers' costs, the recommendation said.

The one-year savings estimate generated from this recommendation ranges from $750 million to $2 billion, and the five-year estimated savings would be more than $10 billion, the report said.

Doctor Payment Policy 

In the chapter on physicians, the commissioners reiterated their prior recommendation that the SGR formula be replaced with updates for the next decade, with higher levels for primary care services than for other services.

Bipartisan leaders in the House are discussing ways to replace the SGR, Medicare’s formula to reimburse physicians, along with a fallback position of a three-month “doc fix.”

If Congress doesn’t act, doctors will get more than 20 percent less for treating Medicare patients after the current short-term fix expires at the end of March.

Under MedPAC's approach, fees for non–primary care services would be reduced in each of the first three years, followed by a freeze. Fees for primary care would be frozen for 10 years.

In the area of replacing the PCIP, MedPAC Chairman Glenn Hackbarth said in January—when the commission approved the recommendation—that he views the proposed new bonus as a “stop-gap” measure and that more fundamental changes are needed to boost primary care.

Medicare Advantage

In the area of private plans, MedPAC said that between 2013 and 2014, enrollment in Medicare Advantage plans grew by about 9 percent (or 1.3 million enrollees), to 15.8 million enrollees. This compares with a growth rate of 3 percent for the total Medicare population, according to the report.

About 30 percent of all Medicare beneficiaries were enrolled in MA plans in 2014, up from 28 percent in 2013. The growth is occurring despite the continued phase-in of the Affordable Care Act's methodology for reducing MA payments to the level of pay under fee-for -service (FFS) Medicare. For 2016, the Centers for Medicare & Medicaid Services has recommended about a 1 percent cut in payments.

Payments to plans in 2015 will be 2 percent above spending in traditional Medicare, compared with 6 percent in 2014, the report said. This means that “plan enrollees in 2015 would receive about 102 percent of the funding that Medicare spends on similar FFS Medicare beneficiaries.”

However, the report said that due to coding patterns, Medicare is actually paying about 105 percent, or $8 billion, more toward care for MA enrollees in 2015 than it would have spent had the beneficiaries remained in FFS Medicare.

The report cited research that found that risk scores for MA plan members—based on diagnoses that providers coded during the year before the payment year—have been growing more rapidly than risk scores for those in FFS Medicare.

Explaining the difference, the report said that to “receive the maximum payment they may rightfully claim, plans have an incentive to ensure that the providers serving the beneficiary record all diagnoses completely.”

Part D Drug Benefit

In addition to recommendations, the MedPAC report examined the status of the Part D drug benefit. It said although the number of MA plans offering the prescription drug benefit (MA-PDs) remained stable in 2015, the number of stand-alone prescription drug plans (PDPs) dropped by 14 percent from 2014.

“The decline in PDPs is due largely to consolidation of plans among sponsors that merged with one another or is in response to CMS’s policy intended to differentiate more clearly between basic and enhanced benefit plans and a policy discouraging plans with low enrollment,” the report said.

In addition, the number of PDPs with no premium, for which enrollees who receive the low income subsidy (LIS) may join, declined by 20 percent, from 352 in 2014 to 283. Low-income beneficiaries are assigned to a PDP that bids at or below the low-income subsidy threshold and can provide zero-dollar previous premium benefits.

To contact the reporter on this story: Michael D. Williamson in Washington at and Mindy Yochelson in Washington at

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

The report is at

A MedPAC fact sheet is at

The rehabilitation providers' document is at


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