Boards of Trustees for the Federal Hospital Insurance & Federal Supplementary Medical Insurance Trust Funds Issue Annual Report to Congress (Part 6 of 12)

WASHINGTON, June 8 (TNSrep) -- The Boards of Trustees for the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds issued a 263-page annual report to Congress on June 2, 2022.

(Continued from Part 5 of 12)

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B. SUPPLEMENTARY MEDICAL INSURANCE

SMI consists of Part B and, since 2004, Part D. The benefits provided by each part are quite different. The actuarial methodologies used to produce the estimates for each part reflect these differences and thus appear in separate sections (IV.B1 and IV.B2).

1. Part B

a. Cost Projection Methodology

Estimates under the intermediate assumptions are calculated separately for each category of enrollee and for each type of service. The estimates are prepared by establishing the allowed charges or costs incurred per enrollee for a recent year (to serve as a projection base) and then projecting these charges through the estimation period. The per enrollee charges are then converted to reimbursement amounts by subtracting the per enrollee values of the deductible and coinsurance. Aggregate reimbursement amounts are calculated by multiplying the per enrollee reimbursement amounts by the projected enrollment. In order to estimate cash expenditures, an allowance is made for the delay between receipt of, and payment for, the service.

(1) Projection Base

To establish a suitable base from which to project the future Part B costs, the incurred payments for services provided must be constructed for the most recent period for which a reliable determination can be made. Accordingly, payments to providers must be attributed to dates of service, rather than to payment dates; in addition, the nonrecurring effects of any changes in regulations, legislation, or administration, and of any items affecting only the timing and flow of payments to providers, must be eliminated. As a result, the rates of increase in the Part B incurred cost differ from the increases in cash expenditures. As a check on the validity of the projection base, incurred reimbursement amounts are compared with cash expenditures.

(a) Practitioner Services

Private contractors acting for the Centers for Medicare & Medicaid Services (CMS) pay reimbursement amounts for services billed by practitioners, including physician services, durable medical equipment (DME), laboratory tests performed in physician offices and independent laboratories, and other services (such as physician-administered drugs, free-standing ambulatory surgical center facility services, ambulance services, and supplies). These Medicare Administrative Contractors (MACs) use CMS guidelines to determine whether Part B covers billed services, establish the allowed charges for covered services, and transmit to CMS a record of the allowed charges, the applicable deductible and coinsurance, and the amount reimbursed after reduction for coinsurance and the deductible.

(b) Institutional Services

The same MACs also pay reimbursement amounts for institutional services covered under Part B. These include outpatient hospital services, home health agency services, laboratory services performed in hospital outpatient departments, and such services as renal dialysis performed in free-standing dialysis facilities, services in outpatient rehabilitation facilities, and services in rural health clinics.

Separate payment systems exist for almost all the Part B institutional services. For these systems, the MACs determine whether Part B covers billed services, establish the allowed payment for covered services, and send to CMS a record of the allowed payment, the applicable deductible and coinsurance, and the amount reimbursed after reduction for coinsurance and the deductible.

For those services still reimbursed on a reasonable-cost basis, the costs for covered services are determined on the basis of provider cost reports. Reimbursement for these services occurs in two stages. First, bills are submitted by providers to the MACs, and interim payments are made on the basis of these bills. The second stage takes place at the close of a provider's accounting period, when a cost report is submitted and lump-sum payments or recoveries are made to correct for the difference between interim payments and final settlement amounts for providing covered services (net of coinsurance and deductible amounts). Tabulations of the bills are prepared by date of service, and the lump-sum settlements, which are reported only on a cash basis, are adjusted (using approximations) to allocate them to the time of service.

(c) Private Health Plan Services

Private health plans with contracts to provide Part B services to Medicare beneficiaries are reimbursed directly by CMS on either a reasonable-cost or capitation basis. Section IV.C of this report contains a description of the assumptions and methodology used to estimate payments to private plans.

(2) Projected Fee-for-Service Payments for Aged Enrollees and Disabled Enrollees without End-Stage Renal Disease (ESRD)

Part B enrollees with ESRD have per enrollee costs that are substantially higher and quite different in nature from those of most other beneficiaries. Accordingly, the analysis in this section excludes their Part B costs. Those costs, as well as costs associated with beneficiaries enrolled in private health plans, are discussed later in this section.

(a) Practitioner Services

i. Physician Services

Medicare payments for physician services are based on a fee schedule, which reflects the relative level of resources required for each service. The fee schedule amount is equal to the product of the procedure's relative value, a conversion factor, and a geographic adjustment factor. Payments are based on the lower of the actual charge and the fee schedule amount.

The physician fee schedule updates are specified by law for every future year. Prior to enactment of the Consolidated Appropriations Act, 2021 and the Protecting Medicare and American Farmers from Sequester Cuts Act, the update for 2021 through 2025 was statutorily set at 0 percent. Together these laws put in place a 3.75-percent update for 2021, an update of -0.7 percent for 2022, and an update of -2.91 percent for 2023. For 2024 and 2025, the updates continue to be 0 percent. Starting in 2026, the annual update for qualified physicians in advanced alternative payment models (advanced APMs) will be 0.75 percent, and, for all other physicians, the update each year will be 0.25 percent.

Per capita physician charges have also changed each year as a result of a number of other factors besides fee increases, including more physician visits and related services per enrollee, the demographic changes of the Medicare population, greater use of specialists and more expensive techniques, and certain administrative actions.

Table IV.B1 shows increases in total allowed charges per fee-for-service enrollee for the physician fee schedule and practitioner services. The sequestration of Medicare benefits in April 1, 2013 through September 30, 2031, with the exception of May 1, 2020 through March 31, 2022 when it was suspended, does not affect allowed charges and therefore is not reflected in table IV.B1; rather, that impact is included in table IV.B2.

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Table IV.B1.--Increases in Total Allowed Charges per Fee-for-Service Enrollee for Practitioner Services

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Based on the increases in table IV.B1, and incorporating the sequestration of Medicare expenditures, table IV.B2 shows the estimates of the average incurred reimbursement for practitioner services per fee-for-service enrollee.

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Table IV.B2.--Incurred Reimbursement Amounts per Fee-for-Service Enrollee for Practitioner Services

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Starting in 2019, qualified physicians who are part of an advanced APM receive payments that are different from those received by other physicians. For 2019 through 2024, qualified physicians in an advanced APM will receive an annual incentive payment equal to 5 percent of their Medicare payments. Most physicians who are not qualified physicians in an advanced APM will instead be under the merit-based incentive payment system (MIPS) and will receive a payment adjustment according to their performance. The performance adjustment ranges from -9 percent to 0 percent in 2022, and it could range from -9 percent to 27 percent for 2023 and later. For 2020 through 2024, MIPS physicians could receive an additional payment adjustment for high performance. For 2022, the largest additional payment adjustment for a physician is 1.86 percent. For 2023 and 2024, it could be as much as 10 percent. The total of all additional payment adjustments made to MIPS physicians in a year must not exceed $500 million. For 2026 and later, qualified physicians in an advanced APM will receive an update of 0.75 percent while other physicians will receive a 0.25-percent update. Based on these payment mechanisms, the existing demonstration and payment models, and the requirements for becoming an advanced APM qualified physician, the Trustees assume that physician participation in advanced APMs will grow from 13.5 percent of spending in 2020 to 100 percent by 2065.

ii. Durable Medical Equipment (DME), Laboratory, Physician-Administered Drugs, and Other Practitioner Services

Unique fee schedules or reimbursement mechanisms have been established not only for physician services but also for virtually all other non-physician practitioner services. Table IV.B1 shows the increases in the allowed charges per fee-for-service enrollee for DME, laboratory services, and other services. As noted previously, allowed charges are not affected by the sequestration of Medicare expenditures. Based on the increases in table IV.B1, table IV.B2 shows the corresponding estimates of the average incurred reimbursement amounts for these services per fee-for-service enrollee; these amounts are affected by the sequestration.

Prior to 2011, DME items and laboratory services were updated by increases in the CPI, together with any applicable legislated limits on payment updates. Beginning in 2011, these items and services were updated by the increase in the CPI minus the increase in the 10-year moving average of economy-wide productivity.

A competitive-bidding program was implemented in 2011 to determine Medicare payment for a certain portion of DME items, and as a result this portion is no longer statutorily updated by the CPI or affected by the annual productivity adjustments. Round 1 of the competitive-bidding program was implemented on January 1, 2011 in nine metropolitan statistical areas (MSAs), and it lowered total DME spending by less than 2 percent. Round 2, which included both an expansion to 91 additional MSAs and the implementation of a national mail-order program for diabetic supplies, was effective on July 1, 2013 and lowered total DME spending by about 20 percent. The spending was lowered by an additional 4 percent by January 1, 2017, when national pricing for these services was fully implemented. CPI growth is used as a proxy for the updates for these items in the projections. The non-competitive-bidding portion of DME items continues to be updated by the increase in the CPI minus the increase in economy-wide productivity.

Beginning in 2018, Medicare payments for laboratory services are linked to private payment rates, and consequently these services are no longer updated by the CPI minus the productivity adjustments.59 For laboratory services, as is the case with DME services, growth in the CPI is used as a proxy for updating the private payment rates, a process that occurs roughly every 3 years.

For DME and laboratory services, spending growth from 2018 to 2019 was driven by volume increases for orthotic braces and genetic cancer testing. The majority of the increase in spending is thought to have been for fraudulent services billed through various telemarketing schemes. In response to the high utilization growth, CMS took administrative actions against the providers and medical professionals involved in the alleged fraud. As a result, spending for these services decreased during the second half of 2019. COVID-19 tests have been a significant source of laboratory services costs during the pandemic.

Medicare pays average sales price plus 6 percent for most physician administered drugs. Most of the COVID-19 vaccine costs (excluding the cost of administering the vaccine) are included in the physician administered drug category. Per capita charges for these expenditure categories have also grown as a result of other factors, including increased number of items and services provided, demographic change, more expensive items and services, and certain administrative actions. This expenditure growth is projected based on recent past trends in growth per enrollee.

(b) Institutional Services

Over the years, legislation has established new payment systems for virtually all Part B institutional services, including a fee schedule for tests performed in laboratories in hospital outpatient departments. A prospective payment system (PPS) was implemented on August 1, 2000 for services performed in the outpatient department of a hospital. Similarly, a PPS for home health agency services was implemented on October 1, 2000. Table IV.B3 shows the historical and projected increases in charges and costs per fee-for-service enrollee for institutional services, excluding the impact of sequestration.

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Table IV.B3.--Increases in Costs per Fee-for-Service Enrollee for Institutional Services

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Based on the increases in table IV.B3, table IV.B4 shows the estimates of the incurred reimbursement for the various institutional services per fee-for-service enrollee. Each of these expenditure categories is projected on the basis of recent trends in growth per enrollee, along with applicable legislated limits on payment updates. The sequestration impact is reflected in the table.

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Table IV.B4.--Incurred Reimbursement Amounts per Fee-for-Service Enrollee for Institutional Services

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(3) Projected Fee-for-Service Payments for Persons with End-Stage Renal Disease (ESRD)

Most persons with ESRD are eligible to enroll for Part B coverage. For analytical purposes, this section includes two groups of enrollees: (i) those who qualify for Medicare due to ESRD alone and (ii) those who qualify not only because they have ESRD but also because they are disabled. Enrollees in this latter group, who are eligible as Disability Insurance beneficiaries, are included in this section because their per enrollee costs are both higher and different in nature from those of most other disabled persons. Specifically, most of the Part B reimbursements for both groups are related to kidney transplants and renal dialysis.

The estimates under the intermediate assumptions reflect the payment mechanism for reimbursing ESRD services. Payment for dialysis services occurs through a bundled payment system, which began in 2011. The bundled payment rate is updated annually by an annual ESRD market basket less the increase in economy-wide productivity. Starting in 2021, eligible individuals with ESRD may enroll in a Medicare private health plan to obtain their Part A and Part B coverage. Table IV.B5 shows the historical and projected enrollment and costs for Part B benefits. The sequestration impact is reflected in the table.

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Table IV.B5.--Fee-for-Serv ice Enrollment and Incurred Reimbursement for Beneficiaries under Age 65 with End-Stage Renal Disease1

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(4) Projected Payments for Persons with Immunosuppressive Drug Coverage Only

The Consolidated Appropriations Act, 2021 specifies that, beginning in 2023, Part B will provide coverage of immunosuppressive drug costs for individuals who previously were covered by Medicare Part B due to having permanent kidney failure and who received a kidney transplant that functioned for 3 years, resulting in a loss of Part B coverage. These individuals will pay a premium that is 15 percent of twice the aged actuarial rate instead of the standard Part B premium (which is 25 percent of twice the aged actuarial rate plus a repayment amount, if applicable). Transfers from the general fund of the Treasury will be made to Part B to make up the difference between the immunosuppressive drug premium and the standard Part B premium. (These transfers will be treated as premium income for general revenue matching purposes.) In 2023, an estimated 2,000 immunosuppressive drug coverage enrollees are estimated to have roughly $5 million in Part B benefits.

(5) Private Health Plan Costs

Part B payments to private health plans have generally increased significantly from the time that such plans began to participate in the Medicare program in the 1970s. Most of the growth in expenditures has been due to the increasing numbers of beneficiaries who have enrolled in these plans. Section IV.C of this report contains a description of the assumptions and methodology for the private health plans that provide coverage of Part B services for certain enrollees.

(6) Administrative Expenses

The ratio of Part B administrative expenses to total expenditures was 1.2 percent in 2021. Projections of administrative costs are based on estimates of changes in average annual wages, fee-for-service enrollment, and an estimated5- to 7-percent reduction in expenditures due to sequestration for the period April 1, 2013 through September 30, 2031, with the exception of May 1, 2020 through March 31, 2022 when it was suspended.

b. Summary of Aggregate Reimbursement Amounts on an Incurred Basis under the Intermediate Assumptions

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Table IV.B6 shows aggregate historical and projected reimbursement amounts by type of service on an incurred basis under the intermediate assumptions.

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Table IV.B6.--Aggregate Part B Reimbursement Amounts on an Incurred Basis

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The estimated Medicare costs for the COVID-19 vaccines and their administration are included in the "Physician-administered drugs" category, the "Hospital" category, and "Physician fee schedule" category of tables IV.B2 and IV.B6. Based on the Trustees' assessment of statements from pharmaceutical companies, historical price patterns, and statements from market analysts, the 2022 price of the vaccine is estimated to be approximately $60, and the 2022 cost for the vaccine administration is estimated to be $40.

Roughly 57 percent of the Medicare population is expected to receive the COVID-19 vaccine in 2022. The annual vaccination rate is expected to decrease somewhat over time, reflecting both the possibility that immunity will last longer than a year and the possibility that the prevalence or the seriousness of COVID-19 will decrease. On average, those vaccinated are estimated to receive 1.3 doses in 2022. The number of doses per persons receiving a vaccine in a year is estimated to decrease over time to 1.1 due to the expectations that single-dose vaccines may become more likely and that only one dose will be required for a booster shot. It should be noted that there is an unusually large degree of uncertainty with this estimate and that the projection could change significantly as more information becomes available.

c. Projections under Alternative Assumptions

Projections of Part B cash expenditures under the low-cost and high-cost alternatives were developed by modifying the growth rates estimated under the intermediate assumptions. Beginning in calendar year 2022, the low-cost and high-cost alternatives contain assumptions that result in benefits increasing, relative to the Gross Domestic Product (GDP), 2 percent less rapidly and 2 percent more rapidly, respectively, than the results under the intermediate assumptions. Administrative expenses under the low-cost and high-cost alternatives are projected on the basis of their respective wage series growth.

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The report is posted at: https://www.cms.gov/files/document/2022-medicare-trustees-report.pdf

(Continues with Part 7 of 12)

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