Hospitals should get 3.3% Medicare payment boost in 2021: MedPAC

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Crystal Yednak Senior Manager, Health Research Institute, PwC US January 31, 2020

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Hospitals would receive a 3.3% payment increase from Medicare in 2021 under a recommendation approved by the Medicare Payment Advisory Commission (MedPAC) this month. Acute-care hospitals would receive a 2% base payment increase and could get 0.8% more through the hospital value incentive program that MedPAC has encouraged Congress to adopt. (MedPAC recommendations are non-binding but are often influential with lawmakers and policymakers.)

An additional 0.5% would be available through the elimination of penalties from the four hospital quality programs that the nonprofit legislative branch agency wants to see consolidated into its recommended hospital value incentive program.

If Congress does not implement the hospital value incentive program, hospitals would receive a 2.8% increase as CMS has scheduled. The commission, which did not recommend an increase for physicians, said its proposal aims to reduce the difference in payment rates by site to discourage hospitals from continuing to buy physicians offices to access higher reimbursement rates.

Commissioners also signaled worry over hospitals’ margins for Medicare, which were -9.3% for 2018. Even for providers deemed “efficient,” margins were in the negative, at -2%. The margins are expected to increase to -8% in 2020, according to MedPAC, but commissioners pointed to alarming hospital closure numbers and said it plans to monitor the impact of payments on access to hospitals in some areas.

HRI impact analysis

The proposed increase would be the largest for hospitals in years, according to MedPAC, and would reward hospitals for running efficiently and providing quality care. It also would even out payments between physicians offices and hospital outpatient departments, which CMS says has been driving up costs.The Congressional Budget Office estimates that MedPAC’s recommendation would increase spending by between $750 million and $2 billion next year, according to MedPAC’s presentation.

But it remains unclear whether Congress will take action to consolidate the four hospital quality programs—the Hospital Inpatient Quality Reporting Program, the Hospital Readmissions Reduction Program, the Hospital-Acquired Condition Reduction Program and the Hospital Value-Based Purchasing Program—into the one recommended by MedPAC.

MedPAC’s single program would measure hospitals on mortality, readmissions, Medicare spending per beneficiary, patient experience and hospital-acquired infections, accounting for differences in a patient population by distributing payment adjustments through peer grouping.

However, the American Hospital Association has urged Congress and MedPAC to pump the brakes on the consolidation of quality programs to more thoroughly evaluate the measures and take into account more stakeholder input.

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Trine K. Tsouderos

HRI Regulatory Center Leader, PwC US

Tel: +1 (312) 241 3824

Crystal Yednak

Senior Manager, Health Research Institute, PwC US

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