Not all news is negative news—even in the healthcare sector.   Premium increases and doctor shortages and pandemic scares are the current fair for most American medical executives.  It’s enough to make a hospital honcho hang his or her head in despair.  However, every now then, some dim ray of light shines through the darkness, a small sign that there may be some good news on the horizon for America’s hospitals.

Recommendations and Rationale

Healthcare Dive is reporting that the Medicare Payment Advisory Commission (MedPAC)—a nonpartisan legislative branch agency that provides Congress with analysis and policy advice on the Medicare program—has recommended increasing payments for hospitals, long-term care facilities (LTACs) and dialysis services for 2021.  At the same time, MedPAC is recommending a decrease in payments for home health and inpatient rehabilitation services beginning the same year.  The advisory group has also reiterated its suggestion that ambulatory surgical centers (ASCs) should be required to report cost data.

Each March, MedPAC makes its report to Congress.  Often, the recommendations contained in these annual reports translate to hard legislation or regulatory change for the following year.  Among this year’s report are the following key elements that pertain to the acute care hospital community:

• For fiscal year 2021, update the fiscal year 2020 Medicare base payment rates for acute care hospitals by two percent.
• For fiscal year 2021, provide hospitals with an amount equal to the difference between the update recommendation and the amount specified in current law through the Commission’s recommended hospital value incentive program (HVIP).

Essentially, the suggested hospital payment increase would be accomplished by an across-the-board adjustment of two percent, which is less than the 2.8% scheduled under the law. The difference would be funneled into quality rewards. The net effect would raise aggregate payments by an average of 3.3 percent.

The recommendation represents a rare request from MedPAC to increase Medicare spending, but Executive Director Jim Matthews said in a call with reporters that the commission viewed it as warranted based on “reviewing margins of a subset of the most efficient hospitals.” Those facilities had been bucking the trend with slightly positive margins—that is, until last year.  The change prompted the commission to consider whether a higher payment was warranted, but it favored a targeted approach. “The problem of doing an across-the-board higher update is, one, it costs a lot of money and, two, some of that money is going to hospitals that already have a positive margin,” Matthews said.

Further Findings

Here are some of the key points coming out of the March 2020 report that will be of interest to many of our readers:

• Hospital access to capital remains strong due to years of relatively high all-payer profit margins, which were at 6.8 percent in 2018. “This access is reflected in significant hospital construction and strong bond offerings at relatively low interest rates,” according to the report.
• Medicare Advantage (MA) enrollment grew 10% from November 2018 to November 2019, with 34% of Medicare beneficiaries now in MA plans. That number is only projected to increase.  A more focused analysis of the MA program found that—while enrollment has surged—the market has become more concentrated. In 2007, the top four organizations had 45 percent of enrollment, and in 2019 that number grew to 62 percent. The report notes, however, that the vast majority of beneficiaries lived in an area where at least three companies offered plans last year, meaning plan options haven’t necessarily been curtailed.
• In a review of hospital consolidation requested by Congress, MedPAC research showed the decades-long trend toward consolidation has generally led to higher commercial prices. It also found that greater market power leads to high non-Medicare profit margins and those margins lead to higher costs per discharge.  However, the agency found the direct association between market power and costs to be statistically insignificant.
• The commission also looked at the effects of the 340B drug discount program on health system acquisition of physician practices. It found there could be a small influence, but the effect was overwhelmed by more general trends in the prices for 340B drugs. “So we felt that even in those instances where we could observe a small statistically significant effect, it was probably not a major driver in healthcare consolidation,” Matthews said.

While the MedPAC recommendations and findings are sure to cause some consternation in some quarters, there remain a few items that will be seen by many as fairly positive.  If nothing else, it allows hospital executives to undertake more targeted planning for what may be coming down the pike.  However, with the massive amount of changes that have taken place between the release of the MedPAC report and the time of this writing, no one can be certain what the future may ultimately hold.  The government may decide to tweak these numbers even more in light of the extraordinary effects and financial fallout of the COVID-19 crisis relative to America’s hospitals.

In the midst of all these changes now swirling about, we are here to provide a measure of stability and reassurance.  We can provide guidance and assistance in a number of areas that may ease some of the current stress.  Reach out to us at info@miramedgs.com.