CMS Takes Some Steps to Improve Medicare Payments

Over the past two months, the Center for Medicare and Medicaid Services (CMS) has proposed or issued several new rules aimed at reducing costs and improving efficiency and quality of care within the Medicare program. While not all of these rules would necessarily save money or improve the delivery of care (and the rules have their detractors), we welcome CMS's efforts to push for continued progress in strengthening Medicare.

On July 12, CMS proposed an initial set of rules that it argued would "modernize Medicare and restore the doctor-patient relationship." These rules would update the physician fee schedule, simplify physician payments and reporting requirement for evaluation and management (E&M), pay physicians for "tele-health" services, and reduce Medicare Part B drug payments. CMS issued two additional new sets of rules on July 25 and August 9 to move further toward site-neutral payments and improve Accountable Care Organizations.

Of the many proposed rules put forward this summer, three in particular have the potential to reduce federal and overall health care spending, thus reducing budget deficits and out-of-pocket costs.

Perhaps most significant is CMS's proposal to move further toward site-neutral payments. Generally speaking, Medicare pays more for services provided by hospitals and hospital-owned clinics than for the same service provided in a physician's office. MedPAC, President Obama, President Trump, and CRFB (among others) have all called for equalizing these payments, and in 2015 lawmakers passed legislation paying certain new hospital-owned outpatient departments under the physician schedule rather than the hospital one. CMS's proposed rule would apply this same policy to all clinic visits, essentially eliminating the current law grandfathering for those services. According to CMS, this change would save the federal government roughly $600 million in 2019 while reducing patient costs by $150 million. In addition, the proposed rule closes a potential loophole in the 2015 legislation by clarifying that new types of services provided at grandfathered sites will be paid under the physician fee schedule rather than at grandfathered rates. Health experts at the Brookings Institution believe these moves will also have "spillover benefits in private insurance by reducing hospitals’ incentives to acquire physician practices," particularly if more aggressive site-neutral payment policies follow.

Additional savings would come from a proposed rule to reduce outpatient drug payments. Specifically, CMS proposes to adopt a recommendation from MedPAC and the President's budget to pay for certain physician-administered drugs at 3 percent above wholesale acquisition cost (WAC) rather than 6 percent above WAC. This proposal would mainly reduce the cost of new (and often high-priced) drugs where no average sales price (ASP) data are available; Medicare would continue to pay for most physician-administered drugs at ASP plus 6 percent. CBO recently estimated the policy would save $152 million over ten years. It might also pave the way for further savings if policymakers adopt a recommendation supported by CRFB and President Obama to reduce the reimbursement rate for ASP-calculated drugs as well.

Finally, CMS released new rules for ACOs participating in Medicare that would reduce the amount of time an ACO could participate in a one-sided risk model. In the Medicare Shared Savings Program (MSSP), most ACOs participate in a one-sided risk model where they are given a benchmark for per-patient spending and are rewarded if they generate savings (while meeting quality requirements) but aren't penalized if their costs exceed the benchmarks. A smaller share of ACOs participate in two-sided risk models where they are rewarded for generating savings and penalized for exceeding benchmarks. Under the current program, an ACO can spend up to six years (through two three-year agreements) in a one-sided risk model known as Track 1. CMS proposes to eliminate Track 1 and have only two tracks, BASIC and ENHANCED. The BASIC track would allow ACOs to stay using one-sided risk for only two years (or one if they are already participating in the MSSP), then use two-sided models with progressively higher risks and rewards in years three through five. The ENHANCED track would be similar to the most advanced two-sided track (Track 3) currently in the MSSP. Moving toward two-sided risk is one of the ACO changes emphasized by Fix the Debt's joint paper with Dartmouth and Dartmouth-Hitchcock Health. Other experts have recommended this change as well.

To be sure, not all of the proposed rules will save money, and some may be worth rethinking. For example, experts have warned that efforts to simplify evaluation and management payments could result in inflated utilization if physicians take on more patients with less complex medical issues or could harm quality if physicians spend less time with patients with complex issues. Similarly, paying doctors for tele-medicine could result in more costs if it is used more to supplement rather than replace current doctor visits and does not result in fewer emergency department visits or hospital admissions.

These rules have not yet been finalized. They are subject to 60-day comment periods, which will end at different points over the next month depending on when the rule was proposed. We look forward to reviewing the final rules and hope that they incorporate aspects of the proposed changes that further the goals of slowing cost growth and improving the overall delivery of health care.

This blog is part of the American Health Care Initiative, a joint collaboration of the Committee for a Responsible Federal Budget and the Concerned Actuaries Group dedicated to informing the public, policymakers, and key stakeholders regarding the fiscal and managerial challenges confronting our health care system. As part of the initiative, the two organizations will each publish and promote a series of papers, briefings, presentations, and other materials intended to energize a much needed conversation about improving the sustainability and accessibility of our health care system and managing the rising costs that threaten our current system.