The Medicare Payment Advisory Commission (MedPAC) has released its June 2015 Report to the Congress on Medicare and the Health Care Delivery System. The report includes a series of recommendations on Medicare hospital short-stay policy, in response in part to hospital concerns about related Medicare Recovery Audit Contractor (RAC) Program audits and appeals and the financial impact on beneficiaries associated with the growing use of outpatient observation day status. Specifically, MedPAC recommends that:

  • The HHS Secretary direct RACs to focus reviews of short inpatient stays on hospitals with the highest rates of this type of stay; base RAC contingency fees in part on claim denial overturn rates; revise the RAC look-back period; and withdraw the “two-midnight” rule. 
  • The Secretary should consider penalizing hospitals with excess rates of short inpatient stays to substitute for RAC review of short inpatient stays. 
  • Congress should revise the skilled nursing facility (SNF) three-inpatient-day hospital eligibility requirement to allow for up to two outpatient observation days to count toward meeting the criterion.
  • Congress should require acute-care hospitals to notify beneficiaries placed in outpatient observation status about how it may affect their financial liability for SNF care.
  • Congress should package payment for self-administered drugs provided during outpatient observation on a budget-neutral basis within the hospital outpatient prospective payment system.

MedPAC also addresses a number of other Medicare policy issues, including:

  • Medicare Part B drug payment, including considerations for reform of the average sales price plus 6 percent methodology and potential changes to payment for drugs provided through the 340B program;
  • Value-based incentives for Part B drugs, use of least costly alternative or functional equivalence, consolidated payment codes, and/or bundled payments to link Part B payment to clinical effectiveness evidence; 
  • How Medicare Part D individual reinsurance and risk corridors may create a disincentive for plans to manage drug spending for high-cost enrollees; 
  • Polypharmacy and opioid use -- discussing options such as incentivizing plans to manage polypharmacy and inappropriate opioid prescribing, limiting the number of prescribers per patient or requiring patients to fill their prescriptions at one or two pharmacies, and developing team-based practices to manage care;
  • How to synchronize Medicare payment and quality improvement incentives across its three payment models: traditional fee-for-service, Medicare Advantage, and accountable care organizations; 
  • Potential reforms to Medicare quality measures, including the concept of a “healthy days at home” population-based outcome measure; and
  • Characteristics of the “baby boom” generation of Medicare beneficiaries.