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Advising the Congress on Medicare issues
MedPAC > News > Ambulatory care settings > Upcoming: MedPAC’s Annual Payment Updates

Upcoming: MedPAC’s Annual Payment Updates

At our November meeting, we had a session on beneficiary access to hospital services, which was the first part of MedPAC’s yearly work on payment updates. 

Here’s an explainer on why and how we do this work:

MedPAC provides information and advice to the Congress on a wide range of matters related to Medicare, including annual recommendations for health care providers’ payment updates. The law that created MedPAC requires the Commission to weigh in each year about how Medicare payments to hospitals, physicians, nursing facilities and other providers (nine FFS sectors in total) should change in the year to come. For example, in the March 2015 report, the Commission will make recommendations about payment policy for 2016. The recommendations are usually represented as a percentage change, e.g. 1% increase, a freeze, etc.

In addition to advice on how the overall level of payment should change, MedPAC may make recommendations on how payment policy should be restructured to encourage providers to achieve quality outcomes, coordinate care for Medicare patients, or to deter fraudulent or abusive practices. These types of recommendations may include higher payments for some types of services within a sector and/or lower payments for others. For example, the Commission has recommended changes to redistribute payment between therapy services and non therapy services in the skilled nursing facility and home health payment systems. 

To determine the appropriate payment policy for each provider group in Medicare, the commission uses a payment adequacy framework with a variety of factors – access to care, access to capital, quality, and financial margins.

Here’s what we look at in each:


One way to gauge the impact of Medicare’s payments to a set of providers is to examine access to care. If beneficiaries have good access to care, that may indicated that Medicare’s payments are adequate, because providers are willing to care for beneficiaries under current payment rates. We use several approaches to measure access:  measuring supply of providers, tracking utilization of health care services, and asking beneficiaries directly about their access.

Quality of care

While quality of care does not have a direct relationship to level of payments – there are highly paid providers with poor quality and providers under financial pressure with excellent quality – understanding Medicare beneficiaries’ experience of care can help the Commission shape policies to improve care for patients.

Providers’ access to capital

Access to capital is a measure that attempts to capture the overall financial health of an industry. If providers are able to acquire capital for expansions, mergers & acquisitions, or other financial transactions, that may be an indication that their revenue streams (including from Medicare) are adequate. On the flip side, economy-wide trends (e.g. the recession in 2008) may hinder access to capital, which would be unrelated to Medicare or other payers’ rates.

Providers’ financial performance

Where data is available, MedPAC compares Medicare’s payments to providers’ costs and produces a Medicare “margin,” expressed as a percent.  Positive margins indicate that Medicare payments exceed the cost of care for Medicare patients and conversely, negative margins indicate that providers’ cost are greater than Medicare’s payments.

Keep in mind, none of these indicators on their own are a definitive indication that Medicare is paying providers adequately. MedPAC considers the full set of indicators together to make a judgment about the appropriate payments for the upcoming year.

Also this time of year, the Commission reviews the status of the Medicare Advantage and Part D (prescription drug plans) programs.  Because MA and Part D plan payments are set in part based on plans bids, the Commission doesn’t make annual payment update recommendations using the same framework as in FFS. That said, as appropriate, MedPAC will make recommendations to improve the two programs.

At the December meeting, MedPAC staff analysts present analysis on the above issues and the Chairman presents series of draft recommendations for the Commission to consider. The Commission discusses the information and draft recommendations in December, and then returns to them at the January meeting. The Commission takes votes in January, and final recommendations – along with the analysis – are published in March report to Congress.