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Our Take: Docs, hospitals, and insurers want more from Medicare. Without reform, CMS can only do so much.

Apr 15, 2024

Medicare payments were in the spotlight last week, as the Senate Finance Committee held a hearing on improving payments to physicians who provide chronic care for Medicare beneficiaries and CMS proposed a 2.6% payment increase for inpatient hospitals in 2025.

And earlier this month, CMS finalized the 2025 rate announcement for Medicare Advantage (MA) plans, confirming a slightly lower benchmark rate for next year — despite objections from health insurance executives and lobbyists after the Advance Notice of changes was released in January.

Apparently, no one is satisfied with the payments they’re receiving from CMS, but unless Congress takes action to reform Medicare payment policies, which seems unlikely to happen this year, CMS is limited in what it can do, in part because of budget neutrality rules.

As the Senate Finance Committee’s ranking member, Sen. Mike Crapo, R-Idaho, acknowledged the need for payment reform in his prepared remarks at Thursday’s hearing.

“Medicare’s coverage and payment policies play a dominant role in setting benchmarks and baseline rules of the road not just for the program itself, but also for countless other payers, affecting hundreds of millions of working families,” he said. “In short, ensuring a resilient and robust Medicare program has become more vital than ever,” he added. “Unfortunately, our current policies seem poised to fall short of that goal.

“In the absence of proactive policy changes, tens of millions of seniors will suffer the consequences. The risks of inaction range from surges in wait times and delays — including for critical care — to clinician office closures and cutbacks in provider participation.”

Sen. Crapo said the committee “has an obligation to strengthen the Medicare program and avert these outcomes.”

When adjusted for inflation, Medicare Physician Fee Schedule payments have declined by more than 25% in the past two decades, according to Sen. Crapo.

Sen. Ron Wyden, D-Ore., who chairs the Senate Finance Committee, supported the need for payment reform in his prepared remarks:

“The way traditional Medicare pays physicians to manage and treat [chronic health] conditions has not kept up with the times. Democrats and Republicans were right to tackle the problem in 2018 [with the Creating High-Quality Results and Outcomes Necessary to Improve Chronic Care Act], and it’s now time to act boldly again.”

One area Sen. Wyden called attention to is the need to “empower” primary care, acknowledging that “out-of-whack payment rules” are partly to blame for the “persistent shortage of primary care providers in many parts of the country.” He said the rules “make primary care a less appealing specialty than other fields.”

CMS implemented a 3.37% cut to Medicare physician payments in January to offset payment growth elsewhere in the 2024 physician fee schedule, as required to maintain budget neutrality. Congress reversed the cut by 1.68% in March.

The American Medical Association issued a statement in response to the partial reversal in March, noting that “physicians are the only providers who do not receive automatic inflation updates to their Medicare payments, and they are the only group experiencing a payment cut this year despite high inflation.”

The American Hospital Association (AHA) issued a statement of its own on Wednesday in response to CMS’ proposed payment rate increase of 2.6% for inpatient hospitals, calling it “woefully inadequate, especially following years of high inflation and rising costs for labor, drugs, and equipment.”

In a separate statement, the Federation of American Hospitals said, “We need Congress to examine the inability of current payments to keep up with rising costs outside hospitals’ control, which ultimately jeopardizes patient care at a time when hospitals are being threatened with Medicare cuts.”

CMS said the proposed changes in operating and capital payment rates, along with other changes, would “generally increase hospital payments by $3.2 billion in fiscal year 2025. The agency is accepting comments on the proposed rule through June 10.

In its announcement of the Medicare Advantage payment update for next year, CMS did not specify the 0.16% cut in benchmark payments, instead estimating that payments to MA plans would actually increase on average by 3.7%, or more than $16 billion, in 2025 due to increases in the effective growth rate and MA risk score trends.

Overall, the federal government is projected to pay between $500 billion and $600 billion in MA payments to private health plans next year, according to CMS.

When CMS released the Advance Notice of the MA changes in January, some insurers said they would offer fewer MA plans or eliminate certain supplemental benefits if the base rate did not increase. Health insurers could take other steps as well, such as raising premiums on their commercial plans, to adjust for the loss in MA revenue.

Or, they may decide to keep quiet. According to Fitch Ratings, the largest health insurers accumulated $1.1 trillion in combined revenue last year, Modern Healthcare reported.

In his prepared statement at the Senate Finance Committee hearing, Sen. Wyden said Medicare Advantage “was built from the ground up to offer more flexible benefits” as compared with traditional Medicare. He noted that MA plans can use rebates to support “these flexibilities and extra benefits” and said those rebates have increased from $12 billion in 2014 to $67 billion in 2024.

He then took health insurers to task:

“Unfortunately, it’s increasingly clear that insurance companies are more interested in playing coding games with Medicare’s payment rules to maximize their bottom line. Medicare Advantage plans seem to be using more and more of these excess dollars to juice their marketing and enrollment. Experts told this committee that MA plans to spend $6 billion per year on marketing middlemen who sell their plans to seniors.”

Health Care Rounds #165: Revolutionizing Pharmacy Care with Alison K. Lum

Ever wonder why prescription drugs cost so much? In this episode of Health Care Rounds, Alison Lum (VP of Pharmacy Services, Blue Shield of California) joins John to peel back the layers of the complex world of pharmaceutical pricing and sheds light on the misleading list prices, opaque rebates, and tangled web of stakeholders that contribute to skyrocketing medication costs. Listen here or wherever you get your podcasts.

What else you need to know

Vertex Pharmaceuticals agreed to acquire Alpine Immune Sciences, signing a definitive agreement to pay $65 per share, or approximately $4.9 billion, in cash for the Seattle-based biotech. Alpine’s lead candidate, povetacicept, is initially being developed as a potential best-in-class treatment for IgA nephropathy (also known as Berger disease), a progressive autoimmune disease that can lead to end-stage renal disease. The protein-based immunotherapy, which also has potential as a treatment for other kidney diseases, is expected to enter Phase III development in the second half of this year, the companies noted in the announcement. The boards of both companies have approved the acquisition, which is expected to close later this quarter, pending customary closing conditions.

AstraZeneca and Daiichi Sankyo’s Enhertu is the first antibody-drug conjugate (ADC) to be granted a tumor-agnostic indication, having received accelerated approval by the FDA earlier this month as a treatment for previously treated adults with unresectable or metastatic HER2-positive solid tumors. It’s the fifth approved indication for Enhertu (fam-trastuzumab deruxtecan-nxki), following approvals for treating HER2-positive and HER2-low breast cancer, gastric cancer, and non-small cell lung cancer. The accelerated approval is based on objective response rate and duration of response, the drugmakers said in a press release, noting that continued approval for the indication may be contingent on verification and description of clinical benefit in a confirmatory trial.

Peter Fine is retiring as CEO of Banner Health after 24 years at the helm. Upon his retirement on June 30, Amy Perry will become CEO of the Phoenix-based, nonprofit health system. Fine will resign from Banner’s board of directors as well but will serve as CEO emeritus through next January, according to the announcement. Perry joined Banner as president and chief operating officer in November 2021 and will retain her role as president after becoming CEO. Before Banner, Perry was executive vice president at Atlantic Health System and earlier held the same position at LifeBridge Health. Before that, she was with Mount Sinai Medical Center in Miami Beach, Fla., for 20 years.

New York City-based Aegis Ventures is partnering with nine health systems in a strategic alliance called the Digital Consortium. Aegis Ventures said in a news release that it will work with the health systems “to co-develop an ecosystem of synergistic companies — built for health systems by health systems — that address core clinical and operational pain points. AI and automation coupled with deep health care expertise will be a unifying theme across the portfolio.” Founding members of the Digital Consortium include Endeavor Health, Indiana University Health, Memorial Hermann Health System, Northwell Health, Novant Health, Ochsner Health, Ohio State University Wexner Medical Center, Sharp HealthCare, and Stanford Health Care. Dr. John Noseworthy, emeritus president and CEO of Mayo Clinic, will serve as chair.

In a program dubbed Desktop Medicine, Kaiser Permanente tested an artificial intelligence-powered system designed to streamline the review of patients’ email messages by labeling message content (e.g., medications, skin conditions, neck and back pain, or emergent content) and directing the messages to the optimal contact (such as a medical assistant, teleservice representative, physician, or pharmacist). The AI system was integrated with Kaiser Permanente Northern California’s electronic health record in 2022, the health system said in a press release. An analysis found that the system labeled three-quarters of nearly 5 million messages sent during a five-month period in 2023, and 1.5 million of the messages were resolved by regional staff before reaching physician inboxes. The study was published April 4 as a JAMA Network Open Research Letter.

Change Healthcare has requested that class-action lawsuits filed as a result of the cyberattack in February be consolidated and centralized in the U.S. District Court for the Middle District of Tennessee, where Change’s headquarters are. So far, there are at least 24 such lawsuits — 13 filed by consumers and 11 filed by providers, Healthcare Dive reported. Many of the lawsuits also name UnitedHealth Group, UnitedHealthcare, and Optum as co-defendants. Meanwhile, it looks as if another group is asking for a payout in connection with the cyberattack, Fierce Healthcare reported, citing Dominic Alvieri, a cybersecurity analyst. Alvieri referred to a post by RansomHub in which the group claims to have data stolen from Change. The post alleges that ALPHV (a.k.a. BlackCat) stole a $22 million ransom payment Change and UnitedHealth paid to restore Change’s systems and keep the data from being leaked. Neither company has confirmed making the payment.


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