The Medicare Payment Advisory Commission (“MedPAC”) met in Washington, DC, on September 7-8, 2017. The purpose of this and other public meetings of MedPAC is for the commissioners to review the issues and challenges facing the Medicare program and then make policy recommendations to Congress. MedPAC issues these recommendations in two annual reports, one in March and another in June. MedPAC’s meetings can provide valuable insight into the state of Medicare, the direction of the program moving forward, and the content of MedPAC’s next report to Congress.

We monitor MedPAC developments to gauge the direction of the health care marketplace. Our five biggest takeaways from the September meeting are as follows:

1. MedPAC opens the new season with daunting challenges facing the Medicare program.

MedPAC began the 2017-2018 MedPAC year by providing context to the issues MedPAC will address this coming year. Starting from 2014, healthcare spending has modestly accelerated, driven in part by health insurance expansions under the ACA and increases in prescription drug spending.  Additionally, because of increased enrollment,  the size of the Medicare program will nearly double within the next decade; rising from approximately $700 billion in total spending in 2017 to more than $1.3 trillion in 2026.  The increasing cost to the Medicare program, in conjunction with the decreasing workforce contribution per beneficiary, is projected to deplete several Medicare funds such as the HI Trust Fund, which covers Part A services, by 2029.  Unless federal revenues, which are historically approximately 17 percent of GDP, increase above 19 percent, Medicare, Medicaid, other major federal health programs, Social Security, and net interest are projected to outpace total federal revenues by 2039.  Also, MedPAC showed that out-of-pocket spending for healthcare services by Medicare beneficiaries and by individuals and families in private insurance plans, are continuing to increase.

2. MedPAC discusses two comparative clinical effectiveness research programs that may address low-value spending.

MedPAC presented two sponsor comparative clinical effectiveness research initiatives: (1) the Patient-Centered Outcomes Research Institute (“PCORI”); and (2) the Institute for Clinical and Economic Review (“ICER”). PCORI was established and funded by the Patient Protection and Affordable Care Act to identify, fund, and disseminate comparative clinical effectiveness research.  As of July 2017, it has awarded $1.69 billion to approximately 580 comparative clinical effectiveness research, data infrastructure, and methods projects.  Additionally, PCORI launched pragmatic clinical trials, which compare two or more alternatives for preventing, diagnosing, treating, or managing a particular clinical condition.  To date, $289 million has funded 24 pragmatic clinical trials.  PCORI’s funding will expire September 30, 2019 if it is not reauthorized by Congress.

ICER is an independent nonprofit organization mostly funded 70% by various other nonprofit organizations, but also funded 30% by health care industry entities, i.e., life science companies, health plans, and pharmacy benefit management companies.  ICER compares clinical and cost-effectiveness of a treatment versus its alternative.

Because most of the studies are still ongoing, it is unknown how Medicare’s utilization of data from these programs implicates or will implicate low-value spending.

3. MedPAC begins Medicare payments for telehealth services discussions under Congress’ 21^st Century Cures Act of 2016 mandate.

Congress mandated MedPAC to answer the following questions by March 15, 2018:

• What telehealth services are covered under the Medicare Fee-for-Service program Parts A and B?

• What telehealth services do commercial health plans cover?

• In what ways can commercial health plan coverage of telehealth services be incorporated into the Medicare Fee-for-Service program?

MedPAC briefly addressed the first question at the meeting. Medicare covers telehealth in four areas of the program with varying degrees: (1) physician fee schedule (“PFS”); (2) other fee-for-service payment systems (“FFS”); (3) Medicare Advantage (“MA”); and (4) the Center for Medicare and Medicaid Innovation (“CMMI”) initiatives.  Medicare coverage for PFS is constrained.  Medicare will cover PFS only if the telehealth services: (i) originate in rural areas and take place at one of several types of facilities; (ii) are conducted via two-way video or store-and-forward technology; and (iii) are for particular fee schedule service codes (i.e., office visits, mental health, substance abuse, and pharmacy management).  The reason for coverage parameters is because there is no incentive to curb the use of telehealth services, and therefore there is concern of a volume incentive.  In contrast, there is flexible coverage for FFS, MA, and CMMI initiatives because the incentive to use telehealth services exists only if it reduces costs.  The latter two questions will be addressed in the following two months.

4. MedPAC addresses the Specialty Pharmacy Industry, and recommends reform in management and data disclosure.

MedPAC began with a general overview of the specialty drug market before shifting to specific specialty drug policy issues within the context of Medicare. In sum, pharmacy benefit managers (“PBMs”) and specialty drug management will have to be reformed in order to contain increased drug spending.

First, MedPAC discussed the use of exclusive specialty pharmacy networks in Part D. Although the “any-willing provider” rule in Part D precludes the use of exclusive networks, MedPAC found that PBMs could get around the rule by “setting fees that discourage certain specialty pharmacies from participating in their network.” Thus, MedPAC recommends Congress to consider the effect of such exclusive networks on the availability of specialty drugs for Medicare beneficiaries. If more of the rebates and fees for specialty drugs shift from PBMs to specialty pharmacies, it may mean increased Medicare program costs.Second, MedPAC recommends CMS provides Plan D sponsors increased access to data related to the amounts of rebates or fees received by PBMs. Plan D sponsors currently do not have access to such information when requested and such disclosures would be “essential for accurate payment, program integrity, and…in evaluating PBM performance.”Third, MedPAC proposed allowing Medicare Advantage Prescription Drug plans (“MA-PDs”) to manage specialty drugs as medical benefits, as is done within the commercial sector. Increased integration in how medical and pharmacy benefits are managed would cap drug spending and facilitate better care. However, MedPAC recognizes that in order for such integration to be feasible, “programmatic changes” within Medicare would have to occur.

5. Use of High Quality Post-Acute Care Providers by Medicare Beneficiaries

Post-acute care (“PAC”) in the United States is delivered primarily through skilled nursing facilities (“SNFs”), home health agencies (“HHAs”), patient rehab facilities, and long-term acute care hospitals. About 40% of hospital discharges use one or more of these services, and approximately $60 billion was spent on PAC in 2015. MedPAC’s concern lies not in the availability of PAC facilities, but in the quality of care provided by the majority of PAC facilities. The rate of rehospitalization doubles between a SNF in the bottom quartile of performance and a SNF in the top percentile. As such, ensuring adequate placement of beneficiaries in high quality PAC facilities is imperative in ensuring long-term health and decreasing repeated hospitalizations. However, the challenge lies in just how to incentivize beneficiaries to choose higher-quality PAC facilities upon discharge.

Medicare has publicly released data rating various SNFs and HHAs; however, the data reflects broad categories of patients and does not report results for specific conditions. Indeed, MedPAC found that such data generally fails to influence which PAC facility a beneficiary will choose. MedPAC considered a wide array of policies and incentives that could positively impact which PAC facilities beneficiaries will attend after discharge.

First, MedPAC supports granting hospitals greater flexibility to recommend PAC providers as part of the discharge process. Hospitals are currently prohibited from recommending specific PAC providers. Granting such flexibility would align discharge planning with the accountability for post-hospital care that hospitals have under programs such as the Hospital Reduction Program or within ACOs. MedPAC also recommends strengthening and implementing current requirements, such as those set forth by the IMPACT Act, which require hospitals to use quality measures as a factor in discharge planning and require providing such quality data to beneficiaries. Furthermore, MedPAC recommends expanding the financial incentives for hospitals and PAC providers to provide higher-quality care. For example, the Hospital Reduction program currently penalizes hospitals with high rates of readmission for six conditions. MedPAC suggested expanding the number of conditions subject to the penalty could encourage hospitalize to scrutinize the quality of the PAC provider to which patients are referred. Finally, MedPAC suggested expanding value-based purchasing programs for PAC facilities.