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The Keckley Report

MedPAC Report to Congress: No Surprises but Incomplete

By June 22, 2020March 1st, 2023No Comments

In a letter to Vice President Pence and House Speaker Pelosi last week, the Medicare Payment Advisory Commission conveyed its annual report to Congress: “Medicare and the Health Care Delivery System.”

In the 227-page report, the commissioners warned that “unless substantial changes are made to the way Medicare pays for services and to how beneficiary care is organized and delivered, the cost of the Medicare program will remain on an unsustainable trajectory.”

Their concern is well-founded. From its founding as part of President’s Johnson’s Great Society program in 1965, Medicare has evolved slowly and expanded predictably. Initially, it covered 19 million seniors and low-income children under 6 for hospital care.  Today, its covers 63 million including the disabled, individuals with end-stage renal disease, low income children to age 18 and others. It added Parts C (Medicare Advantage) and D (Prescription Drugs) along the way. And it’s expensive: last year, Medicare spending ($796 billion) was 21% of total health spending in the U.S. increasing to 25% by 2027.  It’s a popular program among seniors and voters, and a fiscal challenge for lawmakers as 10,000 new enrollees per day are added.

The MedPAC report is thorough: In essence, it calls for ditching fee-for-service incentives replacing them with a new value incentive program building on lessons learned in the Medicare Advantage and Medicare Shared Savings programs:

Medicare Part C (Medicare Advantage/MA):

MA plans currently cover 24 million beneficiaries (34% of Medicare enrollment) and offer a range of supplemental services in addition to basic Part A (hospital) and Part B (professional) services. For enrollees, access to MA plan options is high: 99% of Medicare beneficiaries have access to an MA plan and the average beneficiary has 27 available plans choices. But Star ratings used by Medicare to determine bonuses for MA plans that perform best have become less useful to consumers. Last year, 83% of plans qualified for a bonus payment having received 4/5 stars–up from 33% in 2013. That cost Medicare $6 billion.
Lessons learned: MedPAC found Consolidation among MA plans lends to obfuscation of quality scores and results in star-rating overpayments. And Medicare’s risk adjustment methodology for setting capitation rates for MA plans is flawed. MedPAC recommends its methods for calculating base rates, risk scores and quality be updated using micro-analyses at the local market level to set rates and award bonuses.

Medicare Shared Savings Program (Accountable Care Organizations/ACO):

The 517 ACO’s currently operating serve 11.2 million enrollees (23% of Medicare enrollees). Since begun in 2013, savings from the MSSP program for Medicare have been modest estimated to be 1-2%. There are a number of issues: scale (2013 to 2020, the average size of an ACO increased from 14,500 beneficiaries to 21,600), turnover rates for participating organizations (averaging 10-15% annually in recent years) and member attribution (Medicare enrollee assignment to ACOs). The cumulative result of these structural flaws has been awarding of shared savings bonuses to ACOs that are unwarranted or not supported by verifiable data.
Lessons learned: Technical changes that limit ACO’s from generating unwarranted shared savings using coding intensity changes and other means to create an inaccurate baseline for per enrollee are needed.

The Commission’s recommendation is to replace FFS payments with ‘accountable system of care’ that have incentives to:

  • reduce Medicare’s financial burden on taxpayers and beneficiaries

  • provide all necessary covered services, including preventive services and early disease detection

  • avoid delivering unnecessary, inappropriate, or low value services

  • control the costs of providing appropriate and necessary services

  • deliver chronic care services through a care model that features care coordination among providers

  • improve the quality of services and the patient experience of care

  • address and coordinate both the medical and nonmedical needs of beneficiaries; and

  • embrace the use of new technologies within payment models that have incentives to reduce program spending or improve quality

It concludes: “There are clearly opportunities for Medicare to provide better value given the large amounts that taxpayers and beneficiaries spend on the program.”


None of the proposed changes in the MedPAC report is surprising: they’re essentially technical corrections to existing programs (like Medicare Advantage and ACOs) to reduce Medicare spending. But are these recommended changes enough to assure Medicare’s long-term sustainability? It’s doubtful. Here’s why:

Medicare is complicated. It’s popular with seniors: that’s why politicians promise to leave it alone. It’s hard to understand: each of the four parts has unique eligibility and payment requirements. It’s increasingly expensive, especially for lower income seniors. And its funding by payroll taxes shared by workers and employers is problematic: over the 55 years since its creation, the worker to beneficiary ratio has shrunk from 12:1 to 3:1.

What missing in the MedPAC report are two key recommendations:

Simplification: I am a Medicare enrollee. Navigating its stipulations and understanding its enrollment and pricing policies is ridiculous. I paid a consultant to help decipher my options as I enrolled in each Medicare program and remain baffled by the structural firewalls that limit its effectiveness. If the program is to be sustained, it must be simplified.

Funding: This is tricky: currently, Medicare is funded through a shrinking pool of payroll taxes and limited pool from beneficiary premiums. The solvency of the Medicare program cannot be assured unless alternate sources of funding are added OR benefits curtailed. Medicare per capita spending is forecast to increase at 5.1% annually for the foreseeable future—well above inflation. Employers and consumers are increasingly unwilling to pay doctors and hospitals 100-200% more than what Medicare reimburses for the same service. Something’s gotta give. Shifting to an accountable care system without changing the Medicare funding formula is zero-sum game.

It’s Campaign season: politicians will promise to leave Medicare alone. But in reality, that promise cannot be fulfilled. The sustainability of the popular program requires substantial changes beyond tweaks to the Medicare Advantage and Medicare Shared Savings Programs. That’s missing in the MedPAC report.


P.S. One of the most perplexing issues in the coronavirus pandemic is return to work decisions facing employers. An excellent resource is a monograph published in the New England Journal of Medicine last Thursday wherein Massachusetts researchers outline a series of considerations important to those decisions ranging from several ‘low tech’ steps to be taken like masks and social distancing to workplace testing and others. Economic recovery is predicated on employers regaining traction with customers and their workforces and health providers pivoting effectively to serve their needs.

Barnes, Sax “Challenges of “Return to Work” in an Ongoing Pandemic” New England Journal of Medicine June 18, 2020


By the end of 2020, almost 63 million people will be enrolled in Medicare (18% of population) and by 2060 to 93.8 million.

12% of Medicare enrollees have income under the federal poverty level, up from 11% in 2015. And another 21% live between 100-199%% of the FPL.

The United States spent $796.2 billion on the Medicare program in 2019 (20.6% of total spending) increasing to $1.72 trillion by 2030 (25.2% of total spending). Breakdown in 2018: hospitals (40%), physicians (23%), prescription drugs (14%), nursing homes (5%), home care (5%), net cost of insurance (5%), other professional services (4%), government administration (2%), dentistry (1%), medical products (1%)

Between 2018 and 2028, the program is expected to see annual growth of about 5.1% per capita and 7.9% in overall spending.

80% of Medicare income was generated by general revenue and payroll taxes.

Total outlays are expected to grow to more than one trillion U.S. dollars until 2022 (4.7 % of US GDP vs. 3.4% in 2018. By the end of 2020, almost 63 million people are expected to be enrolled in Medicare.

Major components:

  • Part A (Hospital care) – free for those who worked 40 quarters or more contributing through 2.90% payroll tax paid by employees and individuals; Part A coverage declines after a 60-day inpatient stay.

  • Part B (Physicians, Equipment) – $144.60 – $491.60 based on income plus a $198 annual deductible and 20% co-pay for physician visits and equipment costs

  • Part C (Medicare Advantage) – enrollment is optional, monthly premiums varies by plan ranging from $12.20 to $76.40 plus Medicare payments paid to insurance sponsors

  • Part D – a prescription drug benefit covering discounts for 2800 prescription drugs enrollment optional, premium varies by plan averaging $32.74/month in 2020



“Medicare and the Health Care Delivery System” Medicare Payment Advisory Commission June 2020

Barnes, Sax “Challenges of “Return to Work” in an Ongoing Pandemic” New England Journal of Medicine June 18, 2020;


Altarum: Health Spending Decreased to 10-year Low in April

Per Altarum: total healthcare spending declined 24.3% hitting a 10-year low of $2.88 trillion in April from annualized rate of $3.98 trillion in April. The health spending share of GDP fell to 15.7% in April vs 17.1% in March and almost 18% over the past four years.

  • Hospital care spending dipped from $1.25 trillion to $746 billion during that time. Key findings:

  • Hospital spending and physician and clinical services spending fell by 40.7% and 40.9%.

  • Dental declined by 60.8% year-over-year.

  • Prescription drug spending declined from 14%.

“Personal healthcare is the lowest since February 2011; hospital care spending was last lower in December 2008; physician and clinical services is the lowest since November 2006; and dental services spending is at its lowest since July 1998. “

“Pandemic Spurs Massive Decline in Health Spending” Altarum June 12, 2020;

AMGA: Covid Financial Impact for Groups, Health Systems

The AMGA surveyed leaders of 59 of the nation’s preeminent integrated health systems and 36 independent medical groups May 26 – June 1. Key findings:

  • 90% of medical groups and integrated health systems report that their revenue has declined by 25% or more during the COVID-19 pandemic

  • 40% of medical groups and 20% of integrated health systems saying monthly revenue losses have exceeded 50%.

  • 41% of healthcare systems and 36% of medical groups are forecasting it will be at least a year (Q2 of 2021 or later) before revenues return to pre-COVID levels

  • 23% of healthcare systems and 28% of medical groups said it’s still unknown when their revenues will return to normal.

  • 87% of healthcare systems and 91% of medical groups expect increases in telehealth infrastructure costs

“Medical Groups and Integrated Health Systems Still Experiencing Significant Revenue Losses; Many Providers Forecast at Least a Year Until Revenues Return to Pre-COVID Levels” American Medical Group Association June 16, 2020;

Blue Cross: Pandemic Has Complicated Prenatal Care, Increased Complications During Pregnancy

Blue Cross Blue Shield analyzed claims data for 1.8 million commercially insured women 18-44 between 2014 and 2018 and surveyed 1900 commercially insured pregnant women between 18 and 44 years of age in January 2020. Key findings: 

  • Increasing number of women are experiencing pregnancy complications and childbirth complications. Prevalence rate in 2018 and change from 2014: Hypertension 8.2%/+31%, Type 2 diabetes 4.4%/+28%, diagnosed obesity 18.2%/100%, substance abuse disorder 1.7%/+24%, anxiety 18.7%/+23%, major depression 5.5%/35%

  • The overall pregnancy rate declined by 2% since 2014: the rate for women ages 18-24 declined by 12% while the rate for women ages 35-44 increased by 9%.

  • While the average age of pregnancy increased over the study period from 30.6 to 31, childbirth complications did not increase with age.

  • 14% did not receive prenatal care in their first trimester and a third received fewer than recommended 10 prenatal visits.

“Trends in Pregnancy and Childbirth Complications in the U.S.” Blue Cross Blue Shield Association June 17, 2020;

GoodRx: Pandemic has Disrupted Utilization

According to the GoodRx survey of 1,733 respondents U.S. adults from April 24 to April 29, 2020 released last week:

  • 70% percent of Americans have experienced at least one disruption to their planned healthcare visits including rescheduling an appointment (34%), canceling an appointment (31%) and switching an in-person visit to a telemedicine visit (27%).

  • 39% reported at least one disruption in how they obtained their prescription medication: 10% filled for a larger quantity than normal,14% refilled a prescription earlier than normal, and 9% reported switching to a mail-order pharmacy to fill their prescriptions in response to COVID-19.

  • 11% of respondents who had filled a prescription since the COVID-19 pandemic began could not get their medication due to a shortage.

“Survey Shows How the COVID-19 Pandemic Has Disrupted Americans’ Healthcare” GoodRx June 16, 2020;

Gallup: Pride in America at All Time Low 

  • A majority of adults in the U.S. are “extremely proud” (42%) or “very proud” (21%) to be American–the lowest they have been since Gallup’s initial measurement in 2001. (15% say they are “moderately proud,” 12% “only a little proud” and 9% “not at all proud.)

  • The percentage of Americans expressing extreme pride in the country has been declining over the past 20 years: 55%, felt extreme pride in the initial January 2001 survey, prior to the 9/11 terrorist attacks. In the three subsequent years, between 65% and 70% were extremely proud as the public rallied around the flag. By 2005, that reading fell to 61% and remained steady until 2015 when it dropped to 54%.

  • 20% are satisfied with the way things are going in the U.S., and presidential approval fell back to 39%.

  • Last year saw a record 54-point gap in the percentages of Republicans and Democrats who were extremely proud to be Americans. The gap is narrower this year — 43 points — because of the decline in Republican pride but remains much larger than before.

“U.S. National Pride Falls to Record Low” Gallup June 15, 2020

NORC Survey: Physicians Unprepared to Answer Patient Questions about Health Costs

In December 2019, NORC surveyed 706 practicing, independent physicians not employed by a hospital, health system about the impact high deductible insurance plans have on patients.

Background: 40% of the 160 million covered by employer sponsored insurance have high deductible plans: 59% of these are deductibles of $1500 or less. High deductible insurance plans have seen a 55% increase in premiums and 212% increase in deductibles since 2008.

Key findings:

  • 79% believe that high health insurance deductibles are a key driver of patients’ cost concerns.

  • 51% of physicians say that at least half of their patients ask them questions about what their responsibility will be for the cost of their care, after insurance

  • 75% physicians say they don’t have most of the information they need in order to have cost of care discussions with patients and 40% say their practices do not have the tools required to discuss costs of care with patients.

  • 80% of physicians believe their patients often or sometimes refuse or delay care due to cost concerns.

“The Effects of High-Deductible Health Plans (HDHPs) on Patients and Independent Physicians”  Physicians Advocacy Institute June 2020;

JD Power: MA Plans Need Improvement in Member Communication

JD Power surveyed 3,314 members of the largest Medicare Advantage plans in the United States between January and March 2020. Key findings:

  • 15% of MA plans deliver all three information and communication performance indicators,”

  • Consumers are 3.3 times more likely to receive a helpful communication from their bank than from their health plan.

  • Member satisfaction, especially with helping members understand their out-of-pocket costs and providing reminders for preventive services is a needed.

  • “Overall member satisfaction increases 209 points (on a 1,000-point scale) when plans meet three key performance indicators related to information and communication. coverage and benefits, provider choice, cost, customer service, information and communication and billing and payment.

  • 20% of Medicare plan members say they are interested in receiving information about telehealth.”

J.D. Power 2020 U.S. Medicare Advantage Study, June 18, 2020

Mid-level Participation in ACOs Increasing

  • The number of ACOs increased from 220 in 2013 to 548 in 2018.

  • The average number of participating clinicians in ACOs increased from 263 to 653.

  • Although increases occurred for primary care physicians (from an average of 141 to 251) and medical specialists (from an average of 76 to 157), the increase for nonphysician practitioners (from an average of 47 to 245) was the largest.

  • The average proportion of nonphysician practitioners in ACOs grew from 18.1% to 38.7%, with a commensurate decline in the average share of primary care physicians from 60.0% to 42.2%.

Nyweide et al “Accountable Care Organizations’ Increase In Nonphysician Practitioners May Signal Shift For Health Care Workforce” Health Affairs June 2020

Medicaid Adopting ACOs for Risk Sharing

As of January 2020, 12 states have adopted Medicaid ACOs (covering roughly 4 million beneficiaries), with 10 more states in the planning stages. Most of the states with Medicaid ACO programs (9 of the 12) are engaged in activities related to addressing SDOH, though their models vary considerably. States are incorporating requirements and incentives for ACO providers to address SDOH, the strategies appear to fall into three main categories: (1) requirements that providers screen for social risks; (2) requirements or incentives for partnering with social service organizations; and (3) requirements or incentives for SDOH-associated quality metrics

Elizabeth Tobin-Tyler, Benjamin Ahmad “Marrying Value-Based Payment and the Social Determinants of Health through Medicaid ACOs: Implications for Policy and Practice” Millbank Memorial Fund May 22, 2020