Source: Michigan Health & Hospital Association

In a report to Congress, the Medicare Payment Advisory Commission (MedPAC) has concluded that the Congress and the Centers for Medicare & Medicaid Services will need to make changes across a broad front to increase quality, slow the growth in Medicare expenditures and address Medicare's long-term sustainability.

The 2008 Medicare Payment Policy report focuses on policy recommendations that create incentives for greater efficiency, reward quality, and modify payment rates to private plans and providers to ensure accuracy and equity, according to MedPAC.

The report, released on Feb. 29, reviews the financial context for Medicare and recommends updates for its fee-for-service (FFS) payment systems. It also reviews recent findings and makes recommendations on Medicare Advantage plans and recommendations specific to special needs plans, reviews findings on the private plans offering the prescription drug benefit (Part D), and makes recommendations on Medicare programs for low income beneficiaries.

MedPAC makes updates and policy recommendations for eight Medicare FFS payment systems for 2009. The update is the amount by which the base payment for all providers in a prospective payment system is changed, according to MedPAC.

For 2009, MedPAC recommends that for inpatient and outpatient services, updates equal the hospital market basket (a measure of input prices), implemented concurrently with a quality incentive payment program.

This recommendation balances positive indicators of financial performance (including virtually unprecedented growth in hospital construction, access, and quality—and the finding that some hospitals face little financial pressure to control their costs—against negative Medicare margins, according to the report.

Although separately computed and paid, a hospital’s quality performance payment would likely determine whether its net increase in payments in 2009 would be above or below the market basket increase. Part of the funding for a quality incentive payment policy should come from reducing indirect medical education (IME) payments.

More than half of the IME add-on payment is unrelated to the additional cost of care that results from the intensity of a hospital’s teaching program. The Commission recommends that the Congress reduce the IME adjustment by 1 percentage point to 4.5 percent per 10 percent increment in the resident-to-bed ratio.