MedPAC Report to Congress: A Wrap with Monday?

Yesterday I wrote a post on President Biden’s healthcare budget. Today, I thought a quick visit back to March and MedPAC’s Annual Report to Congress on payment and program adequacy would be a good “wrapper” – for now.

Every year, MedPAC (the Medicare Payment Advisory Commission) reports to the Congress in March on the Medicare fee-for-service (FFS) payment systems, the Medicare (MA) program, and the Medicare prescription drug program (Medicare  Part D). The report covers payment adequacy and other program elements pertinent to budget, access, etc. This year, the report looked at the near-term consequences of the end of the COVID public health emergency (PHE) and higher-than-usual inflation, and the longer-term effects of program spending on the federal budget and the program’s financial sustainability. Note the italics, especially in light of yesterday’s post. From the Executive Summary of the report, a couple of key points to note are,

  • The Commission’s goals for Medicare payment policy are to ensure that Medicare beneficiaries have access to high-quality care and that the program obtains good value for its expenditures.
  • The Commission recognizes that updating base payment rates alone will not solve what has been a fundamental problem with FFS Medicare’s payment systems—that providers are paid more when they deliver more services, whether or not those additional services provide value.
  • Historically, FFS payment systems have seldom included incentives for providers to coordinate care over time and across care settings. To address these problems, broad payment reforms must be implemented expeditiously,
    coordinated across settings, closely monitored, and scaled when appropriate.

Points 2 and 3 are things that I have harped on and written and lectured about for years (decades actually). The Executive Summary is available here: Mar24_ExecutiveSummary_MedPAC_Report_To_Congress_SEC

Within the report, the most interesting chapter, to me, is the first. It is an overview of the program but more so, a discussion of economics of Medicare and the constructs for funding and how the same, impact the overall budget.  Again, think about and reflect to the discussion yesterday regarding Mr. Biden’s budget. The first chapter is available here: Mar24_Ch1_MedPAC_Report_To_Congress_SEC

What the Commission notes, and has for years, is that the Medicare program is fundamentally unsustainable as it presently is configured.  I have said this for decades. The program continues to rely heavily on general revenue transfers (income tax revenue) for solvency.  The premium contributions and Medicare tax revenue are insufficient to cover the program costs.

A myriad of reasons exists for this funding problem, but the largest contributing factor is demographic.  The program continues to grow via more seniors accessing and using benefits than workers remaining in the economy, paying taxes.  Further, Part B premiums, the largest contributor to overall cost, are far insufficient to fund the Part B outlays/expenditures.  Note, this has been true for many, many years. 

Program solvency is thus at risk and inflation and employment characteristics, contribute to the pace at which, insolvency will arrive.  For example, seniors aged 65 may be entitled to Medicare benefits but if employed with health insurance, may choose to defer program participation until their employment career ends (retirement). An economy that contracts in terms of full-time employment, hastens the pace in which 65-year-olds and older, discontinue benefit providing employment, accessing Medicare for insurance coverage. The recent BLS jobs report for March shows a decline in full-time jobs.

What we are seeing is Medicare spending accelerate, consistent with healthcare spending.  The healthcare spend in the U.S. in terms of total dollars, is greater in amount than the GDP of all other world nations save China.  It also is outpacing, GDP growth. This kind of spending economically, is impossible to sustain over time. System-wide reforms and entitlement reforms are long overdue.

Below are the summarized report recommendations concerning fee-for-service reimbursement, Medicare Advantage, and Rural Emergency Hospitals.  The report press release covering this detail is available here: March_2024_MedPAC_Report_Press_Release_SEC  

  • MedPAC is recommending a higher FFS payment update in 2025 for acute care hospitals and physicians and other health professional services. No payment changes from the current law payment for outpatient dialysis providers. Eliminating the payment update for hospice providers. Payment reductions (rate cuts) for three post-acute care sectors (skilled nursing facilities, home health agencies, and inpatient rehabilitation facilities).
  • For Medicare Advantage, the current payment system requires reform. Advantage plans received more dollars in Medicare spending for their beneficiaries than comparable spending.  Over the past several years, the Commission has made several recommendations to improve the program. These recommendations call for the Congress and CMS to make reforms to address imbalances related to coding intensity, replace the quality bonus program, establish more equitable benchmarks, and improve the completeness of encounter data. MedPAC also favors the inclusion of private insurance plans in the program.
  • Rural Healthcare is focus within the report. The Consolidated Appropriations Act, 2021 (CAA) created a new designation, the rural emergency hospital (REH). The object is to help rural communities maintain access to emergency care. Declines in inpatient volume have diminished the impact of Medicare’s inpatient-centric support for rural hospitals. REHs do not provide inpatient care but must meet several other criteria. They must have an emergency department that is staffed 24/7 and a transfer agreement with a Level I or Level II trauma center. They are paid fixed monthly payments from Medicare (approximately $270,000 per month, totaling $3.2 million per year in 2023), in addition to rates of 105 percent of standard outpatient prospective payment system rates for emergency and outpatient services. MedPAC was charged with making a payment recommendation for REH but as of the report date, not enough information was available.  REH participation has been slow in terms of program growth. More specifics on REHs is in this post:

In a follow-up post, I will go into greater detail on the post-acute and hospital segment recommendations (with relevant chapters from the report).  I will also post the full report but caution, it’s a beast to download at 561 pages.


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