HHS, MedPAC Issue New Recommendations for Hospital Payments

Both MedPAC and HHS released recommendations for hospital payments during the last week.


MedPAC (the Medicare Payment Advisory Commission), the primary Medicare advisory group to Congress, finalized its recommendation for a 3.25 percent increase in acute care hospital rates in 2016.


HHS (Department of Health and Human Services) set specific goals for the payment system for standard Medicare beneficiaries: 30 percent of payments should be tied to alternative payment models such as accountable care organizations (ACOs) by the end of 2016 and 50 percent by the end of 2018; and 85 percent of Medicare’s hospital payments made through programs such as the Hospital Value-Based Purchasing Program  or Hospital Readmissions Reduction programs by the end of 2016.




MedPAC projected hospitals’ Medicare margins will decline from -5.4 percent in 2014 to about -9 percent in 2015. The expected decrease was blamed on an ongoing annual 2 percent debt-related sequestration, disproportionate share hospital payment reductions, payment cuts related to the Electronic Healthcare Record Incentive Program, and penalties for poor performance on hospital readmissions and hospital-acquired conditions. (“MedPAC Formalizes Request for Medicare Payment Increase,” HFMA Weekly News, January 23, 2015)


A MedPAC analyst noted that hospitals will still have an incentive to care for Medicare patients “because even with the negative margin, pay rates will cover hospitals’ fixed costs, estimated at 10 to 30 percent.” He added that, “relatively efficient providers were able to make a slight profit on their Medicare patients in 2013.” (“MedPAC Formalizes Request for Medicare Payment Increase,” HFMA Weekly News, January 23, 2015)


Most of the 2,132 hospitals the commission identified as “relatively efficient” were not-for-profit; they had lower 30-day mortality and standardized costs while maintaining overall Medicare margins of 2 percent.




The specific goals from HHS for the new payment system for standard Medicare beneficiaries have been long in coming. The new payment structures will replace the traditional fee-for-service model, which does not provide sufficient economic incentives for providers to curtail volume of care. HHS has released reports on traditional vs. alternative models, including the following:

  • 20 percent of Medicare payments for traditional beneficiaries are made through alternative payments models, which also include bundled payment arrangements
  • The ACO program has reduced Medicare spending by an estimated $417 million since it began in 2011
  • Alternative payment methods helped reduce hospital admissions by an estimated 8 percent in 2012 and 2013, resulting in 150,000 fewer hospitalizations
  • Approximately 70 percent of Medicare beneficiaries are currently enrolled in a traditional coverage program (the remainder are in private plans through the Medicare Advantage program)


(“HHS sets goals for expanding new Medicare payment models,” Alerts Modern Healthcare.com, January 26, 2015)




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