March 18, 2021

March 2021 MedPAC Report Outlines Medicare Spending

The Medicare Payment Advisory Commission (MedPAC)’s March 2021 Report to the Congress was released on Monday, March 15. The report began by outlining the context for Medicare payment policy. The Commission addressed the short-term context for Medicare spending with the COVID-19 pandemic and its impacts on beneficiaries and providers, as Medicare beneficiaries face disproportionately high COVID-19 mortality rates compared to younger age groups. The report also recognized the long-term implications involving Medicare’s Hospital Insurance Trust Fund, which is projected to become insolvent by 2024 (two years sooner than previously predicted). Medicare’s annual spending is projected to double between 2019 and 2029, from $782 billion to $1.5 trillion, driven largely by the increasing number of beneficiaries and the increasing volume and intensity of services delivered.

The report states that the most likely path forward for Medicare is reducing the quantity of services used by beneficiaries, specifically low-value care (“services with little or no clinical benefit or that have more risk of harm than potential benefit”). To keep the Trust Fund solvent over the next 25 years, the Medicare Trustees estimate that either the payroll tax would need to be increased immediately from its current rate of 2.9% to 3.7% or Part A spending would need to be permanently reduce by 17% (about $62 billion in 2021) and comparable amounts in subsequent years.

The report then outlined the process MedPAC undergoes when it makes payment update recommendations (a percentage change) for providers paid under the Medicare fee-for-service payment system. To determine the update, MedPAC assesses the adequacy of Medicare payments for providers in the current year (2021) by considering beneficiaries access to care, the quality of care, providers’ access to capital and how Medicare payments compare with providers’ costs. This year, MedPAC considers recommendations in nine fee for service sectors, including physicians and other healthcare professional services.

Physician and other health professional services

For calendar year 2022, MedPAC recommends that the Congress should update the 2021 Medicare payment rates for physician and other health professional services by the amount determined under current law. The Consolidated Appropriations Act, 2021, included a provision to scale back a large budget neutrality adjustment to the conversion factor as a result of increased relative value units (RVUs) for evaluation and management (E/M) services. This 3.75% increase is set to expire after 2021 under current law.

The Commission strongly supports raising the RVUs for E/M services as a “first step” to address the “long-term devaluation” of these services. The Commission also supports CMS’s decision to implement the changes in a budget neutral manner as a way to help “rebalance” the fee schedule from services that have become “overvalued” (e.g., procedures, imaging, and tests). The report states that CMS still needs to improve the overall accuracy of the fee schedule toward primary care.

This section of the report also includes a discussion of “low-value care.” Low-value care is defined in the report as “the provision of a service that has little or no clinical benefit or care in which the risk of harm from the service outweighs its potential benefit.” The MedPAC states that low-value care, including some imaging services, increases healthcare spending and potentially harms patients by exposing them to risks of injury from inappropriate tests or procedures and can lead to a “cascade” of additional services.

Hospital inpatient and outpatient services

MedPAC found that between both inpatient and outpatient services, there was a total spend of $186 billion. MedPAC found that 5.5 million beneficiaries had 8.7 million inpatient stays in the 3,200 acute care hospitals paid under the Hospital Inpatient Prospective Payment System in 2019. In the same year, 20.6 million beneficiaries made 97.1 million visits to the 3,700 hospitals providing outpatient services under the Hospital Outpatient Prospective Payment System. In general, hospital margins have remained steady. For fiscal year 2022, MedPAC recommends the Congress update the 2021 Medicare base payment rates for acute care hospitals by 2% outpatient update, rather than the 2.4% estimated under current law.

Telehealth in Medicare after the coronavirus public health emergency

During the Covid-19 PHE, the Congress and CMS temporarily expanded coverage of telehealth services, giving providers broad flexibility to furnish telehealth services to ensure that beneficiaries continue to have access to care and reduce their risk of exposure to COVID-19. Hospitals, physicians and other providers have responded by rapidly adopting telehealth to provide continued access to medical care for their patients. Without legislative action, many of the changes will expire at the end of the PHE. The MedPAC Commission did not make any formal recommendations in this chapter, but presented many policy options to consider:

  • Medicare should temporarily pay for specified telehealth services provided to all beneficiaries regardless of their location;
  • Medicare should temporarily cover selected telehealth services in addition to services covered before the PHE if there is potential for clinical benefit;
  • Medicare should temporarily cover certain telehealth services when provided by audio-only interaction if there is potential for clinical benefit;
  • After the PHE ends, Medicare should return to paying the fee schedule’s facility rate for telehealth services and collect data on the cost of providing these services;
  • After the PHE ends, providers should no longer be permitted to reduce or waive cost sharing for telehealth services;
  • Apply additional scrutiny to outlier clinicians;
  • Require clinicians to provide a face-to-face visit before they order high-cost durable medical equipment or high-cost clinical lab tests;
  • Prohibit “incident to” billing for telehealth services provided by any clinician who can bill Medicare directly.

Questions on the MedPAC report should be directed to Katie Keysor, ACR Senior Director of Economic Policy.