MedPAC Recommendations for Unified Payment: What Do They Mean?

The June Medicare Payment Advisory Commission (MedPAC) report to Congress included recommendations for a Unified Prospective Payment System for Post-Acute Care services.

Specifically, the report recommended that Congress direct the Secretary of the U.S. Department of Health and Human Services (IRF) to undertake the following:

  • Implement a prospective payment system for post-acute care beginning in 2021 with a three-year transition;
  • Lower aggregate payments by 5 percent, absent prior reductions to the level of payments;
  • Concurrently, begin to align setting-specific regulatory requirements; and
  • Periodically revise and rebase payments as needed to keep payments aligned with the cost of care.

With the recommendations for implementation beginning in 2021, Inpatient Rehabilitation Facilities (IRFs) as well as other post-acute care (PAC) settings need to be planning for changes in patient volumes and payments to meet patient needs under the proposed and final models.

Implementation and Transition

MedPAC has consistently promoted a unified payment system that spans the four primary post-acute settings: Skilled Nursing Facilities (SNFs), Home Health Agencies (HHAs), long-term care hospitals (LTCHs), and IRFs, citing that the types of patients seen in these settings have significant overlap. While the Centers for IRF & IRF Services (IRF) often does not take immediate action on MedPAC recommendations, typically we will see regulations reflecting them being implemented from two to four years after the recommendations were made. Because of the long history of MedPAC recommendations related to PAC and the availability of significant cross-setting data on patient characteristics (such as age, reason to treat, and comorbidities), it is likely that some unified payment model will be implemented within the time frame recommended in the June report.

As with most other modifications to prospective payment for IRF services, there is a recommended three-year transition period, with some potential for providers to bypass the transition and move immediately to full PAC PPS rates. Because providers that would receive improved payments under the new system would be likely to choose to transition immediately (rather than over the three-year period), it is likely that there would be a concurrent lowering of PAC payments to prevent an increase in aggregate spending for these services.

Lowering Payments by 5 Percent

The Commission (MedPAC) has repeatedly recommended both reductions and/or freezes to payments for PAC providers. That trend continues here, with a recommendation to reduce payments to HHAs and IRFs by 5 percent and to freeze payments to SNFs and LTCHs. As part of the Unified Payment System, MedPAC modeled reductions to overall payments ranging from 2 to 5 percent, suggesting that with a 5-percent reduction in reimbursement overall, payments would remain approximately 9 percent higher than the average cost of stays across the PAC settings.

Periodic Refinements

MedPAC admits that under the proposed PAC PPS, practice patterns may shift as higher-cost providers lower their costs and all PAC providers evaluate and shift case mix and services. Monitoring provider behavior, including level of quality, types of stays admitted, and the adequacy of payment for services, are noted as essential to the new system.

Align Setting-Specific Regulatory Requirements

For a Unified Prospective Payment system to be successful, it will be necessary to waive or modify certain setting-specific regulatory requirements – and because some of these requirements are codified in statute, Congress will need to allow these changes. For this reason, the recommendation ties the implementation of the new  system to the start of the alignment of setting-specific regulatory requirements. Without this alignment, some providers will face a significant difference in regulatory requirements – often increasing costs – that could limit patient access to appropriate care and services.

Key Design Features of a PAC PPS

As noted in the June 2016 MedPAC report, the key design features of a PAC PPS would include the following:

  • A common unit of service (e.g., institutional stay or home health stay)
  • A common method of risk adjustment that relies on administrative data on patient characteristics and incorporates functional status as this data become available
  • Two payment models (one for routine and therapy services, another for non-therapy ancillary services) to reflect differences in benefits across settings; the sum of the two payments will establish the total payment amount for the stay
  • Adjustment of payments for home health stays to prevent considerable overpayment
  • A high-cost outlier policy to protect providers from incurring large losses and help ensure beneficiary access to care
  • A short-stay outlier policy to prevent large overpayments for unusually short stays
  • Uniform application of any payment adjusters across all providers

Why Is This Important Now?

As we move to a unified post-acute payment system, providers will be adjusting to changes in payment based on patient characteristics. Data currently being collected as part of the quality indicators – particularly the newly added GG codes on the IRF-PAI and for HHAs, SNFs, and LTCHs – will be utilized to set standardized payments and make payment adjustments under the new system.

Becoming skilled in scoring these key areas will assist all PAC settings in correctly assessing patients in the future and in assuring accurate payment for services provided. 

The Bottom Line

Unified payment is coming! Post-acute care providers need to be preparing now for the transition in many ways, including  the following:

  • Assessing how the transition in payment that realigns payment to patients with medical versus rehabilitation needs will impact provider payment and patient care services;
  • Refining the scoring and capture of the common code sets, particularly the GG sections of the appropriate patient assessment tools; and
  • Evaluating existing care delivery models within each provider facility to determine how to best adapt to the new model by reviewing facility design, staffing models, patient flow, and quality monitoring.

Important advice: Continually monitor the regulatory process and its changes.


Angela Phillips, PT

Angela M. Phillips, PT, is President & Chief Executive Officer of Images & Associates. A graduate of the University of Pennsylvania, School of Allied Health Professions, she has almost 45 years of experience as a consultant, healthcare executive, hospital administrator, educator, and clinician. Ms. Phillips is one of the nation’s leading consultants assisting Inpatient Rehabilitation Facilities in operating effectively under the Medicare Prospective Payment System (PPS) and in addressing key issues related to compliance.

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