Fact Sheets
JUST THE FACTS: MORE ACCURATE HOSPITAL PAYMENTS TO IMPROVE ACCESS TO QUALITY CARE
JUST THE FACTS: MORE ACCURATE HOSPITAL PAYMENTS TO IMPROVE ACCESS TO QUALITY CARE
- Medicare spends more than $125 billion a year to reimburse nearly 5,000 hospitals for the care they provide to Medicare beneficiaries -- seniors and disabled Americans.
- The Bush Administration wants to make sure that those taxpayer dollars are spent wisely so Medicare is not overpaying for some services, while underpaying for more severely ill patients and those with more complex illnesses.
- The new regulations will not reduce the total amount of money that Medicare pays annually to reimburse hospitals. In fact, the Centers for Medicare & Medicaid Services (CMS) estimates that payments to all hospitals will increase by 3.4 percent for FY 2007.
- Currently, hospitals are reimbursed based on what they charge for care for a particular condition, such as pneumonia, regardless of how severe it is. One patient may have a mild case of pneumonia that is easily treated. Another may have a much more serious case of pneumonia that requires more substantial care at a much greater cost. When hospitals are reimbursed equally for treating both patients, there is an incentive to treat the healthier patients rather than those who need more assistance.
- Based on recommendations from the bipartisan Medicare Payment Assessment Commission (MedPAC) and other independent analysts, the Administration is taking steps to substantially improve our payment system so payments would reflect the actual costs of care, including the severity of a patient’s illness.
- Payments for more severely ill patients and those with more complicated conditions will increase under these new regulations. For example, payments for hospitals treating patients with simple pneumonia with complications would increase by 10.6 percent, and payments for patients with chronic obstructive pulmonary disease would increase by 10.8 percent.
- Other procedures and treatments for which charges are significantly greater than actual costs may be reimbursed at a lower rate. For example, payment rates for inpatients receiving pacemakers would be reduced 9.6 percent because of the high mark-up for the ancillary services related to this diagnosis.
- In a letter to the Administrator dated April 19, 2006, MedPAC expressed pleasure that CMS has proposed to implement three of MedPAC’s four recommended changes to the Prospective Payment System. MedPAC states, “Current payment policies benefit hospitals that focus on less severely ill patients.” The letter also states, “… we wanted to reiterate our strong support for improving the inpatient payment system’s ability to accurately compensate providers for the type and severity of the cases they treat.”
- To ensure that these reforms are implemented effectively, the Medicare program has asked for comments on an overall proposal. As is always the case, the proposal has generated many constructive comments on how the recommended reforms could be improved, and what transition steps would be appropriate to avoid disruptions from sudden changes in the payment system. The final regulations will address these comments, many of which involved steps to limit any potential short-term impact of the proposal.
- The final regulations will be issued in a few weeks.