Understanding whether fee-for-service (FFS) Medicare and Medicare Advantage (MA) plans pay different prices is important — but more difficult to determine than it seems. In “Medicare Advantage Plans Pay Hospitals Less Than Traditional Medicare Pays,” we reported that MA plans paid hospitals 8 percent less, on average, than did FFS for a standard basket of hospital services. Our colleagues at the Medicare Payment Advisory Commission (MedPAC) have since alerted us that we did not account for differences in the way that hospitals receive Indirect Medical Education (IME) payments for MA, as compared to FFS, beneficiaries. In this post, we investigate the extent to which these differences affect our key result.
The Problem
The fundamental problem is that payments to hospitals from FFS have IME included in them, but payments from MA plans do not. According to MedPAC, for each MA admission, CMS makes an IME payment directly to the hospital equal to what would have been included in the payment for the admission had it been for a FFS rather than an MA beneficiary. These IME payments for MA admissions are over and above whatever payments are made by the beneficiaries’ MA plans and the beneficiaries themselves.
The Centers for Medicare and Medicaid Services (CMS) calculates the IME payments for MA admissions based on claims that hospitals are required to submit to CMS. These claims are sometimes called dummy or “no pay” claims, because they are separate from and in addition to the primary claims for payments that hospitals submit to MA plans. In our analysis, we did not include the IME payments made on behalf on MA beneficiaries through this separate channel. Thus, although we accurately calculated the difference in payments made by FFS and MA plans, we may have overstated the difference in payments received for FFS and MA admissions.
The Solution
The correct way to account for IME payments would be to obtain from CMS the IME payments made on behalf of MA beneficiaries and then match them, at the admission level, to the payments made by the beneficiaries’ MA plans and the beneficiaries themselves. The sum of payments from these three sources should then be compared to the sum of payments from FFS (including the embedded IME) and FFS beneficiaries themselves for the common (standardized) basket of admissions.
Unfortunately, we were not able to make this calculation. However, we were able to stratify hospitals by whether they were “teaching” hospitals or not, and then calculate the MA/FFS payment gap for a fixed basket of admissions for non-teaching hospitals only. Because non-teaching hospitals have no (or low) IME payments, the MA/FFS gap in payments we calculate for them would provide an (approximately) unbiased estimate of the difference that we might expect (at least for non-teaching hospitals) if we were able to account for IME payments for MA admissions.
We found that in 2012, the MA/FFS price gap for non-teaching hospitals—analogous to the 8 percent gap we calculated for all hospitals—was 4.7 percent. The bottom line: the exclusion of IME payments from MA claims account for part, but not most, of the MA/FFS difference we originally calculated.
Looking Forward
More generally, our MedPAC colleagues are raising a crucial issue: What does it mean to compare claims payments made from two different systems when the systems may have different side payments not captured at the claims level? In particular, CMS is now giving bonuses to (and imposing penalties on) hospitals with certain FFS claims patterns, over and above (or under and below) regular FFS. According to recent work, these payments are on track to amount to almost 6 percent of all inpatient hospital FFS payments in 2016. By the same token, MA plans may also be exploring the use of bonuses and penalties to provide stronger performance incentives. Because the MA/FFS gap is of approximately the same magnitude as these side payments, accounting correctly for them needs to be a key part of future analyses.
Authors’ Note
The authors thank our colleagues at MedPAC and Amanda Frost of the Health Care Cost Institute for helpful comments.
Laurence Baker and Daniel Kessler have received fees for speaking, consulting, or both from hospitals, insurers, or both.
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