The Hard Truth Behind the MedPAC Report: It’s “Game On” For Providers to Embrace APMs—Now

March 22, 2021
Any thoughtful read of the March MedPAC report leads to the inevitable conclusion that it’s past time for provider leaders to move as quickly as possible into alternative payment models with all possible payers

The headlines in the past week-and-a-half around the report released on March 15 by MedPAC, the Medicare Payment Advisory Commission, to Congress, focused at least in part on the public criticism from physician organizations of MedPAC’s recommendation that practicing physicians not receive the annual Medicare payment update that has been the general norm. As we reported March 16, the two largest national associations of multispecialty physician groups, the Alexandria, Virginia-based AMGA (American Medical Group Association) and the Englewood, Colorado-based MGMA (Medical Group Management Association) both posted statements to their websites highly critical of MedPAC’s recommendation in that area. Both AMGA and MGMA have very valid points, given how extensively financially battered many physicians and physician groups have been in the past year now since the COVID-19 virus emerged and the pandemic spread across the U.S.

But there’s much to be concerned about in MedPAC’s most recent report to Congress. MedPAC, an advisory body with enormous influence in Congress. As the organization explains on its website, “The Medicare Payment Advisory Commission (MedPAC) is an independent congressional agency established by the Balanced Budget Act of 1997 (P.L. 105-33) to advise the U.S. Congress on issues affecting the Medicare program. The Commission's statutory mandate is quite broad: In addition to advising the Congress on payments to private health plans participating in Medicare and providers in Medicare's traditional fee-for-service program, MedPAC is also tasked with analyzing access to care, quality of care, and other issues affecting Medicare.” Further, “MedPAC meets publicly to discuss policy issues and formulate its recommendations to the Congress. In the course of these meetings, Commissioners consider the results of staff research, presentations by policy experts, and comments from interested parties. (Meeting transcripts are available on this website.) Commission members and staff also seek input on Medicare issues through frequent meetings with individuals interested in the program, including staff from congressional committees and the Centers for Medicare & Medicaid Services (CMS), health care researchers, health care providers, and beneficiary advocates.” And, as the organization notes, “Two reports—issued in March and June each year—are the primary outlet for Commission recommendations. In addition to these reports and others on subjects requested by the Congress, MedPAC advises the Congress through other avenues, including comments on reports and proposed regulations issued by the Secretary of the Department of Health and Human Services, testimony, and briefings for congressional staff.”

Providers have often criticized elements of MedPAC’s reports, especially, as in this case, when the organization’s recommendations might negatively impact provider reimbursement. But MedPAC’s influence on Congress is considerable precisely because the agency “calls balls and strikes,” as they say in the baseball world, and maintains a resolutely non-partisan and impartial stance. The various fractious stakeholder groups in U.S. healthcare might regularly decry specific recommendations issued by MedPAC, but no one serious has ever questioned its core capabilities or purpose. And what MedPAC’s leaders shared in this latest report speaks to an unprecedented level of alarm about the always-impending cost cliff in the U.S. healthcare system.

Thus, in their executive summary, MedPAC’s experts make it clear that “The Commission recognizes that managing updates and relative payment rates alone will not solve what have historically been fundamental problems with Medicare FFS [fee-for-service] payment systems—that providers are paid more when they deliver more services, often without regard to the value of those additional services, and that these payment systems seldom include incentives for providers to coordinate services over time and across care settings. To address these problems directly, two approaches must be pursued. First, payment reforms need to be implemented more broadly, coordinated across settings, and pursued as expeditiously as possible. Second, delivery system reforms that have the potential to encourage high-quality care, better care transitions, and more efficient provision of care need to be enhanced and closely monitored, and successful models need to be adopted on a broad scale. In the interim, it is imperative that the current FFS payment systems be managed carefully and continuously improved. Medicare is likely to continue using its current FFS payment systems for some years into the future. This fact alone makes unit prices—their overall level, the relative prices of different services within a sector, and the relative prices of the same service across sectors—of critical importance. Constraining unit price increases can induce providers to control their own costs and to be more receptive to new payment methods and delivery system reforms.”

Further, the report notes, “This year, as discussed in Chapter 1, both the short- and long-term contexts for the Medicare program are sobering,” the report states. “In the short term, the nation is in the midst of a historic coronavirus pandemic. Medicare beneficiaries are at particular risk. Those over 65 are more likely to suffer severe COVID-19 cases and complications and die than those who are younger and have fewer comorbidities. Beneficiaries in nursing facilities have accounted for a disproportionate share of fatalities from COVID-19. In addition, non-White Medicare beneficiaries have faced disproportionately high rates of mortality due to COVID-19, reflecting, in part, longstanding inequalities in the health care system and society. Providers are also under stress. The demands put on individual clinicians and other staff have been extreme. The financial stress on providers is unpredictable, although it has been alleviated to some extent by government assistance and rebounding service utilization levels.”

And here’s the key point of all of this, at least in terms of the costs of the U.S. healthcare system: “The longer-term prospects for the program are daunting as well. The financial future of the Medicare program was already problematic, but as a result of job losses, in 2020 the Congressional Budget Office projected that Medicare’s Hospital Insurance Trust Fund will become insolvent by 2024—two years earlier than previously expected. (Other, long-range projections in Chapter 1 do not yet reflect the impact of the pandemic.) Driven by growth in the volume and intensity of services provided to beneficiaries and the number of beneficiaries aging into the program, Medicare’s annual spending is projected to double in the 10-year period between 2019 and 2029, from $782 billion to $1.5 trillion. During this period, Medicare’s share of total federal spending is expected to rise from 14.6 percent to 17.5 percent.” That estimate accords with the Medicare actuaries’ overall U.S. healthcare cost prediction, made in 2019, which is that we are now just six years away from our annual overall U.S. healthcare expenditures reaching about $6 trillion—an absolutely breathtaking sum. We are already struggling as a country to manage $3.6 trillion a year and 17.9 percent-ish of gross domestic product. $6 trillion and 19.4 percent of GDP? The unthinkable is soon going to be the real.

Or, as the report explains it, “The aging of the baby-boom generation will have an impact on both the Medicare program and the taxpayers who support it. Workers finance the bulk of Medicare Part A through payroll taxes that are deposited into the Hospital Insurance (HI) Trust Fund; workers also help finance Part B and Part D through income taxes and other contributions that are deposited into the general fund of the Treasury. The ratio of workers per Medicare beneficiary has already declined from about 4.6 workers per beneficiary around the time of the program’s inception to 3.0 workers per beneficiary in 2019”—and, most alarmingly, “Over the next decade, as Medicare enrollment continues to grow, the number of workers per beneficiary is projected to decline further: by 2029, the Medicare Trustees project just 2.5 workers per beneficiary.” And, as the report notes, the percentage of Americans over the age of 85 is set to explode.

“These demographics create a financing challenge for the Medicare program,” the report notes. “Payroll tax revenues are not growing as fast as Part A spending, and Medicare already spends more on Part A services each year than it collects through HI Trust Fund revenues—creating annual deficits. (Part A pays for services such as inpatient hospital stays.) Leftover surpluses from prior years have been used in recent years to pay for this deficit spending. As a result, he Trust Fund’s reserves have been dwindling; before the coronavirus pandemic, the Medicare Trustees estimated that by 2026 the Trust Fund’s prior surpluses would be depleted—meaning the HI Trust Fund would be unable to fully cover its obligations each year (Boards of Trustees 2020). In light of job losses caused by the pandemic, CBO estimated in 2020 that a drop in payroll tax revenues will cause the Trust Fund to become insolvent two years sooner—by 2024 (Congressional Budget Office 2020b).”

Faced with this accelerating slide over a cost cliff, federal policymakers have only two broad mechanisms at their disposal: massive provider payment cuts, and a hard push into alternative payment models, which, the report notes, “give providers incentives to more closely manage and coordinate beneficiaries’ care to keep them healthy and reduce unnecessary service use. The ultimate goal of these payment models is to reduce growth in spending while maintaining or improving the quality of care,” the report notes.

As a result, it is impossible to read the MedPAC March report and not walk away with the conclusion that the push into alternative payment models is about to accelerate dramatically.

Provider leaders need to be ready for that push; there is literally no longer any excuse to not get onto the APM train, with all payers. Many lessons are already being learned in the Medicare Advantage program and in accountable care organization (ACO) programs, both those sponsored by the Medicare program itself—the Medicare Shared Savings Program (MSSP) and Next Generation ACO Program), and those sponsored by private health plans.

This is the future. And more and more senior leaders at patient care organizations nationwide are seeing it. Those whose organizations move fastest and smartest, will thrive. Let’s hope that those in organizations that have not yet begun to move, start right now. There’s no need here for a crystal ball; we’ve got the March MedPAC report. Game on.

Sponsored Recommendations

A Comprehensive Workplace Safety Checklist

This checklist is designed for healthcare facilities focused on increasing workplace safety. It’s meant to inspire ideas, strengthen safety plans, and encourage joint commission...

Healthcare Rankings Report

Adapting in Healthcare: Key Insights and Strategies from Leading Systems As healthcare marketers navigate changes in a volatile industry, they know one thing is certain: we've...

Healthcare Reputation Industry Trends

Navigating the Tipping Point: Strategies for Reputation Management in a Volatile Healthcare Environment As healthcare marketers navigate changes in a volatile industry, they can...

Clinical Evaluation: An AI Assistant for Primary Care

The AAFP's clinical evaluation offers a detailed analysis of how an innovative AI solution can help relieve physicians' administrative burden and aid them in improving health ...