How do policymakers determine if Medicare payment levels are adequate? The Medicare Payment Advisory Commission (MedPAC) uses the following criteria:
- Access to care determined by the number of providers and volume of services.
- Quality of care
- Provider access to capital
- Provider margins.
Although these measures do provide valuable information, they are far from perfect. Access to care basically means whether beneficiaries have the opportunity to use medical services should they need it. This could be defined as the proximity of the closest provided or the length of time a beneficiary must wait to receive services. If certain types of people use lots of services whereas others use few, overall volume of services will be an imprecise measure of access. Further, the number of providers may obscure geographic variation where certain areas contain too many providers whereas others have too few.
Provider margins is also problematic. Although aiming to set payments to produce moderate margins (i.e., not excessive, but sufficient to ensure continued provider operations) is reasonable, cost information comes directly from the providers. Acute care hospitals, skilled nursing facilities (SNFs), home health agencies (HHAs), outpatient dialysis facilities, inpatient rehabilitation facilities (IRFs), long-term care hospitals (LTCHs) and hospices all must submit cost reports. However, these providers may decide to inflate their costs. Reporting higher costs will decrease their margins and may cause Medicare to increase payment rates. At the very least, these providers can argue for higher reimbursement because of artificially low margins. Medicare must be sure to carefully audit these reports if it plans to continue using them for payment purposes.