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Last month, the Medicare Payment Advisory Commission (MedPAC) released its March report to Congress, which includes its recent recommendations for hospital and other Medicare payments for Fiscal Year (FY) 2025. The Commission reflected on how the COVID-19 pandemic impacted the health care system and proposed positive payment updates across payment regulations. It also noted how health care spending in the United States is growing faster than the Gross Domestic Product (GDP). In the past twenty years, health care spending has increased by 14.9% and Medicare spending increased from 2.4% to 3.7%. Reflection on COVID-19 and the Public Health Emergency MedPAC acknowledged that the effect of the COVID-19 pandemic still weighs on providers and the U.S. health care system. The Commission noted that although the most pronounced effects of the pandemic have passed, it is continuing to monitor the health care landscape for residual impacts of the pandemic on access, quality and costs. Most notably, the expansion of telehealth services, where demand continues beyond the end of the PHE. Payment Update Recommendations For FY 2025, MedPAC recommends that Congress update the 2024 Medicare base payment rates for general acute care hospitals by 1.5%. However, CMS’s third-quarter 2023 forecasts are currently projected to increase the IPPS and OPPS base rates by slightly less than 3 percent. MedPAC also recommends that Congress:

• Begin a transition to redistribute disproportionate share hospital and uncompensated care payments through the Medicare Safety-Net Index (MSNI).
• Add $4 billion to the MSNI pool.
• Scale fee-for-service (FFS) MSNI payments in proportion to each hospital’s MSNI and distribute the funds through a percentage add-on to payments under the inpatient and outpatient prospective payment systems.
• Pay commensurate MSNI amounts for services furnished to Medicare Advantage (MA) enrollees directly to hospitals and exclude them from MA benchmarks.

Physician and Health Professional Services Under current law, the Physician Fee Schedule (PFS) rates are expected to decline in 2025, due to the expiration of the 1.25% pay increase that will apply in 2024 only and no payment update scheduled for 2025. MedPAC believes that given the current inflation, these cuts could be difficult for clinicians to absorb. The Commission recommends:

• For calendar year 2025, update the 2024 Medicare base payment rate for physician and other health professional services by the amount specified in current law plus 50 percent of the projected increase in the Medicare Economic Index.
• Enact the Commission’s March 2023 recommendation of establishing a safety-net add-on payments under the physician fee schedule for services delivered to low-income Medicare beneficiaries.

Historical Comparison of Medicare Advantage Payments to Traditional Medicare Per the request of Congress, MedPAC examined 2004 to 2023 data to determine any differences in payments between Medicare Advantage (MA) and traditional Medicare. The study found that MA payments were higher than what Medicare would have spent had MA enrollees remained in traditional Medicare. Because of these reasons, MedPAC reiterated the need for policymakers to address coding intensity, replace the quality bonus program, and establish more “equitable” benchmarks. Site Neutral Payments MedPAC briefly reiterated its position on Site Neutral Payments (SNPs), which is that Medicare should not pay more for services provided in a high-cost setting when it is safe and appropriate to provide those same services in a lower-cost setting. However, this was not a key focal point of the report or a stressed recommendation.