MedPAC: Medicare needs to move faster to value-based payment

It’s time for the Medicare program to switch to value-based payment, the Medicare Payment Advisory Commission said Monday in its annual report to Congress.

Medicare’s costs will likely grow out of control unless Congress significantly changes how Medicare pays for healthcare services, structures benefits and delivers care to beneficiaries, MedPAC said. Medicare’s fee-for-service payment system should be gradually replaced “by payment to accountable systems of care” wherever possible, according to the commission.

MedPAC said the lessons learned from Medicare Advantage and accountable care organizations would be good starting points for future reform efforts, even though both programs still need substantial improvements.

“Under an improved Medicare program, most beneficiaries would be able to opt to receive their care through accountable entities,” MedPAC said. “Medicare could design incentives that encourage beneficiaries to choose one of these entities and give providers incentives to participate in them.”

This year, the commission will probably start researching specific ways to accelerate Medicare’s transition to value-based payment, MedPAC Executive Director Jim Mathews said during a press call. The healthcare industry should expect MedPAC to make more detailed recommendations about how to reform Medicare’s payment system over the next couple of years since it’s been a consistent theme during the commission’s meetings in recent years.

Medicare is expected to grow from 3.6% of gross domestic product in 2018 to 4.7% of GDP in 2027. At the same time, there will be just 2.5 workers per Medicare beneficiary in 2029 compared to 3 workers for every enrollee in 2019. Those trends could eventually lead to lower Medicare payments, benefit cuts or higher taxes. MedPAC wants Congress to change Medicare’s trajectory before the program runs into massive financial problems.

MedPAC suggested that Congress replace Medicare Advantage’s quality bonus program with a “value incentive program.” The new program would use a small set of population-based measures to score clinical outcomes and beneficiaries’ experience, as well as evaluate quality within local markets. It would also compare performance among similar groups of beneficiaries to account for social risk factors “without masking disparities in plan performance,” MedPAC said.

The Medicare Advantage VIP program would also change how CMS distributes financial rewards to plans by ending hard cutoffs for bonus payments and creating a new payment withholding.

The commission thinks the proposed changes would address many of the problems it outlined about the quality bonus program in its 2019 report to Congress. Medicare Advantage’s quality bonus program cost $6 billion in 2019. The Congressional Budget Office expects it to cost $94 billion over the next decade.

Medicare Part D could also see mammoth changes if Congress takes up MedPAC’s recommendations for reforming Medicare’s prescription drug benefit.

Under the proposal, plans would pay 75% of the drug costs for all beneficiaries between the deductible and the catastrophic threshold, while Medicare beneficiaries would pay the remaining 25%. The proposal would also create an annual cap on enrollees’ out-of-pocket costs above the catastrophic threshold, which “would shift insurance risk from Medicare to plan sponsors and drug manufacturers,” according to MedPAC.

The commission thinks the proposed changes would create more financial protection for the Medicare program and its beneficiaries, while also encouraging Part D plans and drugmakers to control costs better. Given the recent rise in prescription drug costs, lawmakers could be open to the idea of reforming how Medicare pays for them, despite strong pushback from insurers and drugmakers.

“These reforms will better align the incentives in Part D with the interests of the Medicare program and its beneficiaries,” MedPAC wrote.

MedPAC also offered up technical changes to limit “unwarranted shared savings” for accountable care organizations and tweak Medicare’s prospective payment system for end-stage renal disease. Likewise, the report evaluated modifications made by the 21st Century Cures Act to Medicare Advantage capitated payments and set forth a framework for determining what ought to be paid separately under Medicare’s various prospective payment systems.


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