On October 5, 2023, the Medicare Payment Advisory Commission (MedPAC) held a virtual public meeting. The meeting included the following sessions:

• Considering current law updates to Medicare’s payment rates for clinician services;
• Examining staffing ratios and turnover rates in nursing facilities;
• An alternative method to establish Medicare payments for select conditions treated in inpatient rehabilitation facilities; and
• Workplan: Prices of generic drugs under Part D.

The full agenda for the meeting and presentations for the sessions are available here.

COMMISSIONERS FAVOR CHANGES TO CURRENT PFS UPDATE PROCESS

The Medicare Access and CHIP Reauthorization Act (MACRA) was enacted in 2015. This Act created the Quality Payment Program (QPP), which replaced the Sustainable Growth Rate (SGR) as the basis for updates to clinician payments under the Physician Fee Schedule (PFS). The change severed ties between the Medicare Economic Index (MEI) and physician reimbursement. Instead of using a formula to determine annual payment updates, MACRA set the payment update at .5 percent from 2015 through 2019 and froze all updates from 2020 through 2025. MACRA also created separate bonus payment for physicians via their participation in either the Merit Based Incentive Program (MIPS) or Advance Alternative Payment Models (A-APMs), which aim to incentivize value-based care. Payment updates will resume in 2026, with A-APM participants receiving an annual .75 percent update and other clinicians receiving a .25 percent update. Critics of MACRA have voiced concerns about the Act’s inability to respond to high inflation and questioned whether QPP bonus payments cover the cost of transitioning to value-based care.

In response to these concerns, MedPAC staffers presented research on how PFS payment updates have compared to the MEI since 2000, and the impact these updates have had on access to care and spending per beneficiary. MedPAC discusses PFS reimbursement each year as part of its process; this discussion is separate and intended to address the long-term implications of the current PFS update system under MACRA. MedPAC staff also presented on the following issues related to PFS spending: lessons learned from past approaches to updating payment, growth in the volume and intensity of services, payment differences across settings, the overvaluation of services, and QPP incentive payments.

Medicare Access Remains Strong Despite PFS Updates Lagging Behind MEI

Although PFS updates have not kept up with MEI growth, increasing by 12 percent and 45 percent respectively from 2000 t0 2022, MedPAC staffers found no evidence that the gap between payment updates and the MEI compromised access to care. Surveys found that access for Medicare beneficiaries was better than or equal to the privately insured population. The number of clinicians billing Medicare and clinicians encounters per FFS beneficiary continue to grow, and clinician compensation has grown faster than inflation. Given this evidence, the staffers suggested a “watchful waiting” approach to amending PFS reimbursement.

Staffers also identified the rising volume and intensity of services as a potential concern. Despite PFS updates only rising by 12 percent from 2000 to 2022, PFS spending per beneficiary grew by 94 percent over the same time period. From 2000 to 2017, per beneficiary growth in volume and intensity for imaging services increased by 75 percent. Additionally, staff identified several codes that were overvalued by CMS, highlighting global surgical codes and anesthesia procedures.

Commissioners Support Some Incorporation of Inflation into Default PFS Updates

The commissioners almost unanimously supported changing the current law for PFS payment updates and indexing some portion of the annual update to inflation, though the details of how this update would be applied were not addressed. While some members of the Commission were curious about a limit on spending growth, all members agreed that past attempts at these limits were ineffective, and that any macro level limit that did not provide incentives to cut spending at the individual physician level would be a failure. The Commission saw overvalued codes, in particular global surgical codes, as low hanging fruit that CMS should address to reduce spending. Commissioners were mostly in favor of site-neutral payments, though some expressed concerns that the site neutrality discussion did not consider that sites associated with hospitals provided better care in certain situations. A-APM participation was seen as one lever to reduce volume and intensity increases, and the majority of commissioners were in favor of increasing incentives for participation. In particular, they were concerned about the possibility of MIPS incentives being higher than those for A-APMs.

Multiple commissioners expressed concerns about the “watchful waiting” approach, pointing out that if physicians get to the point where they stop taking Medicare patients, it will be too late to fix the problem. Physician shortages make this access concern more pressing, as imbalanced supply and demand means that it will be easier for physicians to simply shift their caseload toward commercial patients.

Commissioners agreed that more information was needed on volume and intensity changes and how changes in the default update process would be experienced across different specialties. Physician types vary widely in their ability to increase volume and intensity, with primary care physicians being less able than most specialties. Some commissioners were concerned that simply increasing physician payment via a larger annual update would not solve the problem of primary care reimbursement unless some changes were made as to how reimbursement was distributed. Regarding volume and intensity changes, commissioners wanted to know how these changes varied by specialty and how much of the problem could be attributed to bad actors.

MEDPAC BEGINS RESEARCH INTO NURSING HOME STAFFING

The adequacy of nursing home staffing is a long-standing policy concern that received increased attention following the COVID-19 pandemic. This September, CMS released a proposed rule that would set minimum staffing standards at nursing facilities for registered nurses (RNs) and nurse aids, require a RN to be onsite 24/7, enhance facility staffing assessments, and require states to report the percentage of Medicaid payments for certain Medicaid-covered institutional services that are spent on compensation for direct care workers and support staff. The Government Accountability Office (GAO) also recently released a report on nursing home ownership, and CMS is currently reviewing a rule proposed in February of 2023 that would require Medicare skilled nursing facilities (SNFs) and Medicaid nursing homes to disclose more ownership information.

MedPAC Reviews Trends in SNF Staffing

MedPAC staff presented research on the current landscape of state and federal staffing requirements for nursing homes, staffing levels and turnover figures across different facility types, and profit margins and low-income stay shares by facility staffing levels.

In 2022, the median SNF had .6 RN hours per resident day (HPRD), 3.6 total nursing HPRD, and a 53 percent 12-month turnover rate. For-profit SNFs had lower total nursing HPRD figures than nonprofit or government SNFs, at 3.5 HPRD compared to 4.1 and 4.0 HPRD respectively. Commissioners cautioned against making direct comparisons between for-profit and nonprofit SNFs, as nonprofit SNFs are generally focused on providing complex care and do not take on a large number of Medicaid patients. Staffers also found that SNFs with lower staffing generally had higher shares of Medicare covered stays attributable to Part D low-income subsidy (LIS) beneficiaries. For SNFs in the highest quartile of staffing (measured via acuity adjusted total nurse HPRD), LIS beneficiaries made up 32 percent of Medicare covered stays, as compared to 59 percent for those in the bottom quartile. SNFs with lower staffing also had higher median Medicare margins.

38 states and the District of Columbia (DC) have minimum staffing requirements for nursing facilities, which vary widely across states. The proposed federal regulations would set minimum staffing levels at .55 HPRD for RNs and 2.45 HPRD for nurse aids and would not set any requirements for licensed practical nurses (LPNs) or other staff.

Commissioners Identify Areas for Further Research and Express Concerns About Proposed Federal Minimum Staffing Standards

Commissioners generally agreed that increased staffing would raise quality of care for SNF residents but expressed concerns about the proposed rule, including the lack of funding tied to the new requirement, the ability of rural facilities to meet standards, and the impact the standards could have on nursing home staff types not included in the standards and on other health care facilities that compete with nursing homes for RNs.

With regard to the lack of funding, many commissioners saw the new standards as a test of whether there is enough money within the nursing home industry to remain compliant. Facilities will close if money is not available, compromising access to care. This could also lead to consolidation as larger organizations would be better equipped to meet increased costs. However, positive Medicare margins at SNFs with low staffing levels were also cited as evidence that there could be enough money in the industry for facilities to increase hiring. Commissioners were also alarmed by the industry’s high turnover rate and expressed concerns about the ability of facilities to find the staff needed to comply given the current workforce shortage.

Increasing RN and nurse aide staffing without any additional funding could force some facilities to cut staff that were not included in the requirements, such as LPNs, dietitians, or therapists, all of whom are important in maintaining resident quality of care. In particular, commissioners were concerned that the standards ignored LPNs. Similarly, given the work force shortage, SNFs hiring more RNs could pull them away from other areas where they are needed.

Commissioners identified the following areas for future research:

• How do Medicaid payment rates vary across states and is there a relationship between this payment and staffing levels and turnover?
• How do turnover rates, staffing levels, etc. differ between urban and rural facilities?
• What was the impact of the strictest state staffing standards when they were implemented?
• What does SNF quality look like in the three states with direct spending requirements?
• How do we tease out the actual impact of LPNs from the RN substitution effect?

The Commission is not considering making a recommendation on this subject this cycle.

MEDPAC BEGINS DISCUSSION ON AN ALTERNATIVE PAYMENT MODEL FOR NONQUALIFYING STAYS IN INPATIENT REHABILITATION FACILITIES

In 2021, Medicare spending on the 1,200 Intensive Rehabilitation Facilities (IRFs) nationwide was approximately $8.5 billion. There is overlap between the types of patients treated in IRFs and SNFs, with 30 percent of 2021 IRF stays not needing the intensive rehabilitation unique to IRFs and 60 percent of SNF stays being comparable to these nonqualifying IRF cases. Despite the similar motor and cognitive functional status outcomes of IRF and SNF patients, 2021 Medicare payment for nonqualifying IRF stays was about 40 percent higher than that of comparable SNF stays. MedPAC presented two alternative payment methods to narrow this payment difference:

• Use the SNF Prospective Payment System (PPS) to set payment rates for nonqualifying IRF stays and maintain use of IRF PPS to set payment rates for qualifying stays.
• Lower IRF PPS payment rates by creating a base reduction on the difference in payment rates between IRFs and SNFs.

To support these recommendations, the MedPAC staff has plans for future analysis that estimates payments for nonqualifying stays under an alternative payment method, models impact on IRFs, and compares outcomes for nonqualifying stays treated in IRFs with similar SNF stays.

Commissioners supported the continuation of previous post-acute care (PAC) alternative payment research. MedPAC previously stated they would explore opportunities for small-scale site-neutral payments to reflect their position that Medicare should base its payment rates on the resources needed to treat beneficiaries in the lowest-cost, appropriate setting. Therefore, most of the discussion was centered around adjusting data collection methods and refining research questions to better support alternative IRF payment recommendations.

With regards to data collection, Commissioners questioned the integrity of the patient assessment data used to identify qualifying versus nonqualifying cases. MedPAC staff acknowledged hesitation with using such data but thought it best for this preliminary research to utilize CMS’s developed algorithm, which utilizes various patient factors to determine 60 percent compliance in IRFs. Additionally, commissioners requested more interviews with IRFs to obtain their perspective on alternative payment models to better support recommendations. Other commissioners were concerned with how market structure might impact IRF alternative payment recommendations (e.g., the growth of Medicare Advantage (MA), consolidation, and potential for self-referrals). Commissioners requested the inclusion of data comparing MA plans to SNF plans, how MA and bundled payments influence IRF use, the difference between hospital and non-hospital based IRF margins, and IRF occupancy rates over time.

Commissioners also discussed the challenges of implementing site-neutral payments for IRFs and the potential for many unintended consequences, including concerns about qualifying IRF conditions being outdated and case where nonqualifying IRF conditions serve as bridge where a patient goes to a SNF before an IRF. Due to the nuances surrounding the definition of qualifying and nonqualifying IRF cases, Commissioners reiterated the importance of considering the continuum of care when deciding the right research questions to address this topic.

Chair Commissioner Dr. Michael Chernew closed the session by stating that site-neutral concepts are not necessarily true for IRFs, as the core conceptual issues in this discussion are related to quality and whether people are benefiting from therapy, which is not easy to measure and has weak literature support. MedPAC staff will consider comments from this discussion to refine their research for the potential informational chapter in the June 2024 report.

COMMISSIONERS REVIEW MEDPAC’S PLAN TO EXPLORE GENERIC DRUG PRICES IN MEDICARE PART D

Generic drugs account for 90 percent of Part D prescriptions in 2021 but just under 20 percent of gross drug spending. Generic drugs typically cost much less than branded drugs and prices of these drugs tend to decline over time, but the decline has stalled in recent years. Given these factors, the Commission plans to examine several aspects of Medicare Part D generic drugs prices over the next cycle. MedPAC’s work will consist of two parts: 1) an analysis of Part D plan data for select generic drugs and 2) interviews with generic drug supply chain stakeholders. Findings from both projects will be reported at a future meeting.

MedPAC staff reviewed planned work to perform an analysis of product- and National Drug Code (NDC)-level Part D data to understand the extent of variation across prices paid to pharmacies for an identical generic product. As part of its initial analysis, MedPAC is identifying the scope and potential sources of generic price variation by selecting the “top” 150 generic drugs from the 2021 Part D Prescription Drug Event (PDE). 75 drugs were chosen based on the total annual number of fills, and another 75 were chosen based on annual gross drug spending. MedPAC is considering whether characteristics such as the number of manufacturers, number of unique NDCs, or therapeutic class affect price variability. Following this initial analysis, MedPAC will select a subset of generic drugs and examine price variation across categories such as geography and pharmacy type and pharmacy ownership.

MedPAC is also conducting stakeholder interviews with individuals and organizations with broad expertise in the generic drug market, pharmaceutical supply chain participants, and Part D plan sponsors or their pharmacy benefit managers (PBMs) to gain insights into how the pharmaceutical supply chain affects prices of generic drugs. Interview topics will vary based on the stakeholder type and role in the generic drug market. For example, MedPAC staff will ask pharmacy services administrative organizations (PSAOs), group purchasing organizations (GPOs), and PBMs about factors related to negotiation and purchasing. The goal of these interviews is to understand sources of variation in prices of generic drugs, the roles that pharmaceutical supply chain participants play in influencing generic drug prices, and factors that may lead to overpayment for generic drugs by Part D plans.

The majority of commissioners supported MedPAC’s plan to examine generic drug prices in Part D, but one commissioner suggested this work be completed later. The commissioner noted the passing of the Inflation Reduction Act (IRA) has changed responsibility, and that the Commission does not currently have representation from someone with industry expertise.

Commissioner Dr. Stacie Dusetzina suggested several factors to consider in this analysis, noting that one key issue is that generics have operated in a different way than branded drugs. She noted the importance of considering the role of vertical integration and that there is less visibility into claw backs. Commissioner Dr. Gina Upchurch, a pharmacist, also noted concerns about direct and indirect remuneration (DIR) data and clawbacks. A MedPAC staffer noted that they do not have DIR data at the individual pharmacy level. Other commissioners also suggested a number of other areas to examine, including whether beneficiaries’ expectations are being met, quality of generics, the market share of health plans, and unintended consequences. Chair Commissioner Dr. Michael Chernew noted that this is intended to be an informational workplan to understand and provide information on the current landscape and that the Commission is not close to making policy recommendations on this topic.

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This Applied Policy® Summary was prepared by Emma Hammer with support from the Applied Policy team of health policy experts. If you have any questions or need more information, please contact her at ehammer@appliedpolicy.com or at 202-558-5272.