Unequal Medicare payments fuel health care consolidation trends

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In a recent hearing, the House Subcommittee on Oversight and Investigations examined health care consolidation, a growing trend in the health care marketplace. The hearing focused on the true costs of consolidation and the key factors increasingly driving smaller, independent care providers out of the health care system. 

One principle factor fueling marketplace consolidation is the disparity in payment across different health care sites of service, which incentivizes hospital systems to purchase small physician practices and charge more for providing care, ultimately creating higher costs for patients, employers and taxpayers. 

{mosads}As consumers, we expect to pay the same price for a service regardless of where we buy it. If your car dealership charged $1,200 for changing your tires when the local mechanic only asked for $400, you’d rightly question the large discrepancy in costs. 

So why then are hospitals allowed to charge insurers, taxpayers and patients as much as triple what an independent physician practice would charge for the same health care services?

Vertical health care consolidation—the phenomenon through which hospitals acquire and absorb physician practices—is a major contributing factor to the rising cost of health care in the United States.

At $3.3 trillion per year and growing, America’s health care expenditures need to be closely scrutinized to determine where savings are possible without harming care or limiting patient access.  There are reforms on the table that could save billions of health care dollars by improving efficiencies and leveling the playing field for all health care providers.

Medicare and other payers reimburse hospital outpatient departments (HOPD) at vastly higher rates than community-based physician practices for providing the exact same services.  For the administration of chemotherapy drugs, for example, the payment to a hospital outpatient facility is more than double the rate paid to a community cancer clinic ($281 vs $136). 

Sensing an opportunity to generate more revenue, hospitals have exploited the disparity in payment by scooping up freestanding, independent practices and integrating them into larger hospital systems. According to a study commissioned by the Physicians Advocacy Institute, “the number of physician practices owned by hospitals/health systems rose 86 percent between 2012-2015, with 32,000 additional physician practices acquired.”  

When it comes to oncology practices specifically, the rate of hospitals acquiring freestanding practices doubled from 30 percent in 2003 to 60 percent in 2015, according to a study recently published in Health Affairs. Because the payment for chemotherapy at HOPDs is 76 percent higher, on average, than at standalone cancer clinics, the fiscal windfall for hospitals is enormous.

Misaligned reimbursement rates also force patients to pay higher out-of-pocket costs for treatment at HOPDs. In its June 2013 report to Congress, the Medicare Payment Advisory Commission (MedPAC) noted that beneficiary co-payments at hospitals were nearly triple that of freestanding physicians’ offices. MedPAC estimated that equalizing payments across all providers could save Medicare beneficiaries as much as $380 million per year. Allowing the nonsensical payment disparity to continue would be irresponsible and inimical to caring for cancer patients.

On an individual patient level, patients can experience an estimated $650 in higher out-of-pocket costs annually when care is delivered in the outpatient hospital facility, demonstrating how these disparities in payment are negatively impacting consumers.

We are seeing steps in the right direction.  Just this week, President Trump released his fiscal year 2019 budget, which calls for the expansion of site neutral payments for all hospital-owned physician practices.  Under his proposal, Medicare would pay all hospital-owned physician offices located off-campus at the physician office rate, which would save an estimated $33.9 billion over ten years. 

Payment parity across health care settings is the right thing to do for so many reasons. It will reduce marketplace consolidation, preserve patient choice and reduce health care spending for patients, insurers and taxpayers alike. 

Dr. Randy Broun is a practicing medical oncologist/hematologist at OHC in Kenwood, Ohio. He is part of The US Oncology Network.

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