Last fall, Congress passed legislation to adopt ‘site neutral’ payments to medical providers who treat Medicare patients. That means that regardless of where a patient is treated, providers would receive a set payment for care and the patient’s cost-sharing would be the same, as well.

Although the legislation would only affect off-campus hospital outpatient departments (or HOPDs) that are built or acquired after 2016, it is nevertheless an important step toward more equitable payment regardless of the site of service. A new study comparing Medicare payments for three common services finds that cardiac imaging payments, for example, are more than triple when patients receive care at a HOPD instead of a physician’s office—roughly $2,100 vs. $655, respectively.

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The study, prepared by researchers at Avalere Health and released by the Physicians Advocacy Institute, found that the implications of site neutral payment policy for Medicare savings are substantial. Just the potential cost savings from echocardiograms alone could be staggering, given that the Agency for Healthcare Research and Quality says more than 7 million Medicare patients received one in 2011.

Hospitals typically justify the higher payments by contending that the patients they serve are sicker, older, and possess a more vulnerable demographic profile than those seen in the physician’s office. In fact, the study researchers specifically adjusted their calculations for these and other risk factors, and still found that for the three common types of services, Medicare spends more when patients receive services in a HOPD instead of a physician office. 

For colonoscopies and related services, the study found that ‘episode-of-care’ payments were nearly 35 percent higher in HOPDs than physician’s offices. Similarly, payments for evaluation and management services for new patients were 29 percent more in HOPDs, as opposed to comparable visits in offices. For the first time, researchers also looked at Medicare’s payments for the full 22-day period before, during, and after patients received cardiac imaging services. Using this yardstick, Medicare’s payments for echocardiograms averaged $5,148 when provided in HOPDs, but only $2,862 when provided in a physician’s office.

The study also suggested that when care is initiated in hospital-owned facilities, more services follow and these services are more costly, compared to care that is provided in a doctor’s office. The payment differential that begins with the initial service extends and is amplified throughout the entire episode.

Plain and simple, payment neutrality would mean that in many instances, the Medicare system would no longer pay more for the same care just because it was delivered in a hospital outpatient setting. In addition, site neutral payment might curb the incentive for hospitals to acquire physician practices and build new satellite outpatient departments in order to maximize their revenue from the federal program.

Ultimately, these findings suggest that for many common procedures, Medicare spends much less when patients receive treatment in a physician’s office. At a time when all Americans are concerned about rising healthcare costs—and federal policymakers are exploring ways to shift care to the most cost-effective settings—it is heartening to see opportunities for substantial savings.

Kenney is executive vice president of the Physicians Advocacy Institute, a nonprofit advocacy organization established in 2006 that works to guarantee the viability of physicians' medical practices and the ability of physicians to deliver quality patient care.