April 15, 2010

Medicare Payment Advisory Commission (MedPAC)

Holland & Knight Alert
Joel E. Roberson

April 1-2, 2010 Meeting Highlights

The Medicare Payment Advisory Commission (MedPAC) is an independent congressional agency established by the Balanced Budget Act of 1997 (P.L. 105-33) to advise the U.S. Congress on issues affecting the Medicare program. MedPAC held an open Commissioners’ meeting on April 1-2, 2010 in Washington, D.C.

The meeting included sessions on the following subjects:

  • Enhancing Medicare’s ability to innovate
  • The medical malpractice system: a review of the evidence
  • Focusing graduate medical education financing on educational priorities
  • Shared decision-making and its implications for Medicare
  • Improving traditional Medicare’s benefit design
  • Coordinating the care of dual eligible beneficiaries
  • Inpatient psychiatric care in Medicare: trends and issues

This alert provides a summary of the sessions held during this meeting.

Enhancing Medicare’s Ability to Innovate
MedPAC Staff Contacts: Nancy Ray and John Richardson

Under current law, the Secretary of Health and Human Services (HHS) and the Administrator of the Centers for Medicare and Medicaid Services (CMS) have limited authority to test and implement innovative payment, coverage and delivery system reform policies in Medicare. During this session, the MedPAC Commissioners discussed whether additional flexibility was needed to encourage innovation. Specifically, the Commission considered the following proposals: (1) making technical changes to existing payment methods, such as updating case mix and wage indexes; (2) using reference-pricing strategies; (3) using performance-based pricing agreements; (4) applying coverage with evidence development; and (5) researching, demonstrating and implementing policy innovations.

Innovation in Medicare payment policy received a boost from the creation of the CMS Innovation Center in the new health care reform legislation. The bill provides $5 million towards innovation in 2010 and $10 billion for 2011-2019. The bill exempts demonstration projects from certain requirements of the Paperwork Reduction Act, budget neutrality and judicial review.

Although there was general consensus amongst the Commissioners that Medicare should encourage innovation, some of the Commissioners differed on the speed and resources that should be devoted to encouraging innovation. MedPAC staff will investigate the general rate of return for innovative payment policies and research and development experienced by private payers in advance of the next meeting. The staff will consider a possible recommendation that the Office of Management and Budget (OMB) track how much money Medicare is saving as a result of innovation. MedPAC is expected to return to this topic at its next Commissioner’s meeting (September 13-14, 2010).

The Medical Malpractice System
MedPAC Staff Contact: Ariel Winter

This MedPAC session was focused on determining whether Medicare should act to curb the cost of medical malpractice. According to MedPAC staff, the current medical malpractice system impacts Medicare in three primary ways: (1) Medicare payments to providers include some liability costs (folded into hospital DRG payments; factored into physician fee schedule calculation); (2) defensive medicine drives up costs for Medicare; and (3) malpractice impacts the quality and safety of care to beneficiaries. The Congressional Budget Office (CBO) estimates that the cost of medical malpractice is $35 billion in direct costs and it is widely believed billions more in indirect costs as a result of defensive medicine. MedPAC staff concluded that the current medical malpractice system is not performing well for patients or providers.

The presentation included an overview of reforms already implemented in various states and other innovative reforms that showed potential, but which have not been widely adopted. The current state-based reforms reviewed included: caps on non-economic damages, pretrial screening panels, certificates of merit, attorney fee limits, joint-and-several liability reform, collateral-source rule reform, periodic payments and statutes of limitations or repose. The innovative reforms reviewed included: schedules of non-economic damages, safe harbors for adhering to clinical guidelines, government subsidies for malpractice reinsurance, enterprise medical liability, administrative adjudication or health courts, and “apologize and offer” programs. MedPAC also hired outside contractors to complete an overview of medical malpractice reform. This report is available on the MedPAC website.

According to MedPAC staff, only state caps on non-economic damages had a significant effect in curbing the cost of medical malpractice. The staff recommended that the Commissioners consider government-subsidized malpractice reinsurance for providers that meet certain safety criteria or creating a federal administrative adjudication process. The Commissioners expressed an interest in further investigating alternatives to address the costs of medical malpractice, however, several Commissioners expressed a preference not to be overly prescriptive and rather incentivize states and providers to address medical malpractice in a form that was most appropriate for them. MedPAC is expected to return to this topic at its next Commissioners’ meeting (September 13-14, 2010).

Focusing Graduate Medical Education Financing on Educational Priorities
MedPAC Staff Contacts: Cristina Boccuti and Craig Lisk

For the last year, MedPAC has been investigating how to incentivize improvements in the graduate medical education system. Currently, Medicare contributes approximately $100,000 per student to graduate medical education. MedPAC has focused on whether the mix of students (socio-economic background and choice of specialty) fulfilled current demand in the marketplace and whether the content of the curriculum prepared students with the skills required to deliver care in the modern health care delivery environment (evidence-based medicine, shared decision-making, etc.). According to MedPAC, the indirect medical education payments by Medicare constitute $3 billion more than can be empirically justified. At this session, MedPAC issued five recommendations which will be included in its next report to Congress:

Recommendation #1:
Congress should authorize the Secretary to change Medicare’s funding of graduate medical education to support the workforce skills needed in a delivery system that reduces cost growth while maintaining or improving quality. The following is a brief overview of the standards for funding:

  • The Secretary should establish the standards for distributing funds after consultation with representatives of accrediting organizations, training programs, health care organizations, patients and consumers, and health care purchasers.
  • The standards established by the Secretary should, in particular, specify ambitious goals for practice-based learning and improvement, interpersonal and communication skills, professionalism, and systems-based practice including integration of community-based care with hospital care.
  • Performance-based GME funding under the new system should be allocated to an institution sponsoring GME programs only if that institution met the new standards established by the Secretary and the level of funding would be tied to the institution’s performance on standards.
  • The indirect medical education (IME) payments above the empirically-justified amounts should be removed from the IME adjustment and that sum would be used to fund the new performance-based GME program. To allow time for the development of standards, the performance-based GME program should begin in three years (October 2013).

Recommendation #2:
The Secretary should annually publish a report that shows Medicare medical education payments received by each institution and each institution’s associated costs. This report should be publicly accessible and clearly identify each institution, the direct and indirect medical education payments received, the number of residents and other health professionals that Medicare supports and Medicare’s share of costs incurred.

Recommendation #3:
The Secretary should conduct workforce analysis to determine the number of residency positions needed in the United States in total and by specialty. In addition, the analysis should examine and consider the optimal level and mix of other health professionals. This work should be based on the workforce requirements of health care delivery systems that provide high quality, high value and affordable care.

Recommendation #4:
The Secretary should report to the Congress on how residency programs affect the financial performance of sponsoring institutions and whether residency programs are sustainable without federal support.

Recommendation #5:
The Secretary should study strategies for increasing the diversity of the United States health professional workforce; for example, increasing the shares from underrepresented rural, lower income and minority communities, and report on what strategies are most effective to achieve this pipeline goal.

Shared Decision-Making and Its Implications for Medicare
MedPAC Staff Contacts: Joan Sokolovsky and Hannah Neprash

This session focused on whether Medicare should encourage shared decision-making. In this context “shared decision-making” refers to the process of educating and including the patient in the decision-making process to determine a course of medical treatment. The recently-enacted health care reform legislation requires that the Secretary develop standards, certify patient decision aids, award grants to develop decision aids, establish shared decision-making resource centers, and help providers implement shared decision-making programs.

MedPAC Commissioners discussed the pros and cons to establishing standards for shared decision-making. They also discussed the difficulty with ensuring that patient aids were translated into different languages in order to be accessible to all patients. MedPAC staff suggested possible recommendations that included demonstration projects, incentives for providers, incentives to patients, or mandating shared-decision making for certain medical services. MedPAC plans to revisit this subject and consider recommendations at a future meeting.

Improving Traditional Medicare’s Benefit Design
MedPAC Staff Contact: Rachel Schmidt

This session focused on ways to change the traditional fee for service (FFS) Medicare design to reduce cost and ensure the solvency of Medicare. MedPAC is particularly concerned that a small percentage of beneficiaries with the highest health care spending accounts for the majority of Medicare’s cost sharing. The presentation discussed the use of co-pays paid by the beneficiary, incentives for innovations in provider payment systems, moving towards value-based insurance design, and moving towards a more managed care Medicare plan as potential improvements in the Medicare benefit design.

There was a perception at MedPAC that the pervasive use of supplemental coverage (Medigap, retiree plans, private payer) which cover the co-pay for Medicare treatments contributes to higher Medicare spending. The health reform bill included a provision that requires the National Association of Insurance Commissioners to revise standards for Medigap plan C and plan F policies to include nominal cost sharing by January 1, 2015, for new policies. One Commissioner described the use of “nominal cost sharing” in the form of a co-payment as a potential “silver bullet” to reduce cost and change the behavior of beneficiaries. MedPAC plans to revisit this subject and consider recommendations at a future meeting.

Coordinating the Care of Dual Eligible Beneficiaries
MedPAC Staff Contacts: Carol Carter and Christine Aguiar

During this session, MedPAC staff focused on coordination of care for dual eligible (Medicare and Medicaid) beneficiaries. Currently, poor incentives exist for Medicare or Medicaid to coordinate care for dual eligible beneficiaries. MedPAC staff determined that the characteristics of dual eligible beneficiaries should shape care coordination efforts. In addition, MedPAC staff also evaluated two integrated program models: state-SNP managed care programs and the Program of All-Inclusive Care for the Elderly (PACE).

MedPAC staff will continue to evaluate the care coordination of dual eligible beneficiaries by evaluating fully integrated programs and understanding the features of “best practices,” as well as looking at how to facilitate enrollment in the integrated care models. MedPAC staff requested guidance on how they should prioritize their investigation of fully integrated care models. There was a general consensus among the Commission to focus on the following subgroups of dual eligible beneficiaries: dementia, Alzheimer’s, mental health and the developmentally disabled. The Commission also requested that additional models and demonstration projects be reviewed, specifically the Care Management for High Cost Medicare Beneficiary (CMHCB) Demonstration and Money Follows the Person (MFP) Demonstration.

The Commission also requested three levels of additional information needed prior to making future recommendations about the population models:

  1. patient level (common clinical problems)
  2. organization models (from a cost and quality perspective)
  3. policy options to facilitate development of sound models

MedPAC plans to revisit this subject and consider recommendations at a future meeting.

Inpatient Psychiatric Care in Medicare: Trends and Issues
MedPAC Staff Contact: Dana Kelley

The Inpatient Psychiatric Facility (IPF) Prospective Payment System (PPS) was phased in at the beginning of January 2005. In 2008, the payment system was fully implemented. The specific payment method, volume and spending were reviewed as well as the demographics of IPF users. Additionally, the distribution of cases in freestanding and distinct-part IPF units were reviewed as well as the supply of IPFs. From 2004-2008, freestanding hospital IPF percent change in beds increased 11 percent, while the distinct-part units decreased 12.5 percent. Rural IPFs also decreased by 14.7 percent.

The IPF policy issues for consideration were payment accuracy, quality under PPS and episodes of care. The payment accuracy portion focused on cost differences across providers: distinct-part units, patient selection/patient mix and accurate costs for nursing/staff services. The quality portion focused on the new requirement under health reform legislation. The IPF quality reporting program was established for rate year 2014, with a 2 percent penalty for failure to report.

The Commission requested additional research with a focus on access to care and profitability. Several members of the Commission felt the data and quality measures available were insufficient and therefore felt it was difficult to make definitive statements or recommendations (e.g., reason for reduction in volume).


MedPAC typically issues two formal reports to Congress each year in the months of March and June. The MedPAC reports and the recommendations they include often influence the debate on Medicare payment policy both in Congress and in the private payer system. We will continue to monitor and report on future MedPAC sessions. The next open Commissioners’ meeting is scheduled for September 13-14, 2010.

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