MedPAC recommends Congress approve site-neutral Medicare reimbursement

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Medicare reimbursement rates based on location could change under a policy recommended for a vote in Congress.

MedPAC, the independent Medicare Payment Advisory Commission, this week published its annual report with a recommendation on “aligning fee-for-service payment rates across ambulatory settings.” It’s a move that could drive down patient costs while saving money for Medicare.

It could also bolster independent physician practices by removing a financial incentive for hospitals to acquire them and bill for services at a higher rate, the report said. The committee cited “recent growth in hospital acquisition of physician practices” as a specific reason for the recommendation.

Also known as site neutral policies or reimbursement, the issue has sparked debate within the health care industry. The American Academy of Family Physicians and the American College of Physicians both are part of the Alliance for Site Neutral Payment Reform, a coalition of “patient advocates, providers, payers, and employers who support payment parity” regardless of location.

Hospitals fire back

Meanwhile, the American Hospital Association (AHA) said the MedPAC recommendation would redistribute $7.5 billion in Medicare spending for some services performed in outpatient departments and ambulatory surgical centers. That would cut Medicare spending by 2.5% for rural hospitals, reducing their average total Medicare margin from -17.8% to -21%, leading “to devastating financial hardship, even more closures and drastically impact the communities rural hospitals serve.”

AHA argued hospitals are held to higher standards than ASCs and physician offices. Along with 24/7 emergency department services, hospitals offer specialized medical capabilities such as burn and maternity wards, and must pay for everything from disaster preparedness to fire drills.

Meanwhile, hospitals are struggling to bounce back from the COVID-19 pandemic, “the most significant health crisis in a century,” according to AHA.

Ashley Thompson, AHA senior vice president of public policy and analysis, spoke on the issue in an April 26, 2023, hearing of the Health Subcommittee of the U.S. House of Representatives’ Energy & Commerce Committee.

“Now more than ever, hospitals need stable and adequate reimbursements as they face challenging financial circumstances,” Thompson said.

What’s best for patient costs?

No one denies the crucial role of hospitals in communities, said Rep. Cathy McMorris Rodgers, R-Washington, Energy & Commerce Committee chairwoman, who spoke in the same hearing. She cited procedures such as drug administration, diagnostic tests, and imaging that can be done safely in physician offices, and in hospitals.

“This is the right thing to do for patients,” Rodgers said. “Let’s be clear: Hospitals are integral parts of our communities, and we recognize the effects of high labor costs, inflation, and ever-increasing government regulation.

“But the question before us is: Should we support hospitals through a complex and opaque network of cross-subsidies with unintended consequences, like consolidation, that increase costs for patients? Or do we separately work on a transparent, accountable way to support hospitals that need it?”

Other recommendations

MedPAC also recommended:

• Congress should require the U.S. Department of Health and Human Services secretary to cap the Medicare payment rate for Part B drugs and biologics that are approved under the accelerate approval program, under certain circumstances.
• Congress should give the HHS secretary the authority to establish a single average sales price-based payment rate for drugs and biologics with similar health effects.
• Congress should require the secretary to reduce add-on payments reduce add-on payments for costly Part B drugs and biologics paid based on average sales price to minimize the relationship between average sales price and add-on payments, and eliminate add-on payments for Part B drugs and biologics paid based on wholesale acquisition cost.
• Congress should repeal the existing Medicare wage index statutes, including current exceptions, and require the secretary to phase in new Medicare wage index systems for hospitals and other types of providers, based on provider type and metropolitan or rural areas, while smoothing wage index differences across adjacent local areas.