As it stands now, Medicare pays a higher rate for services provided in hospital outpatient departments than it does for identical services provided in physicians’ offices. Over the years, this system has encouraged hospitals to acquire smaller practices so that they can receive the higher rates — but this may be about to change.

The Centers for Medicare & Medicaid Services (CMS) recently proposed “site-neutral” Medicare payments at all facilities — meaning hospitals would no longer receive more reimbursement than doctors’ offices for the same services.

The fact that Medicare has been paying more for identical services delivered in hospitals compared to outpatient services is a serious problem, said one analyst.

Under CMS’ 2017 Hospital Outpatient Prospective (Payment) System (OPPS) proposal, CMS will stop classifying certain physicians as part of a hospital outpatient department (HOPD) that can add facility fees to its charges. The change will likely mean that ambulatory care practices owned by hospitals have less justification for employing physicians.

The fact that Medicare has been paying more for identical services delivered in hospitals compared to outpatient services is a serious problem, said Brian Blase, a senior research fellow at George Mason University’s Mercatus Center in Arlington, Virginia. The system has caused “massive waste and far too many services delivered in hospitals than should be,”  he told LifeZette.

“Government rarely sets the ‘right’ price, which is why Medicare needs fundamental reform and not just periodic revisions to its fee schedule,” said Blase.

The plan will also impact tests performed at doctors’ offices. Medicare pays more for the tests when they’re done in a HOPD compared to a doctor’s office outside of the hospital system.

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The proposed rules have a few exceptions — among them, items and services from dedicated emergency departments, hospital departments within 250 yards of a hospital’s remote location, and those billed by an off-campus hospital department before Nov. 2, 2015, are exempt.

What It Means to You
Experts say the plan would save Medicare about $500 million a year and hospitals would have less of an incentive to acquire smaller practices. Sources say it’s unclear if the move would affect physicians’ salaries at hospitals — though the Medicare Payment Advisory Commission (MedPAC) estimated that hospital revenue would decrease by $1.44 billion per year under an earlier version of the site-neutral payment scheme.

Some hospitals may try to trim costs by letting doctors go, however, which could compromise on patient care, said a patient advocate.

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It’s a good move, said Dr. Debra Patt, a physician and the medical director for the U.S. Oncology Network.  The move would ensure that hospital outpatient services and procedures don’t cost more than identical services at doctor-owned practices. Patt highlighted a Government Accountability Office (GAO) report that showed Medicare reimbursements that vary across sites of service raise Medicare spending.

The current system, she believes, also encourages doctors to integrate their practices with hospitals, which further increases costs and limits the choices patients have.

When mid-level exams and management office visits were performed at an HOPD in 2013, Medicare paid $51 more per visit compared to a physician’s office, GAO data showed. That echoed findings from an IMS Institute report that found cancer care in an HOPD was higher than the exact same care at a community cancer clinic — about 126 percent more to dispense common cancer drugs and 100 percent more for overall drug infusion.

Here’s what this means for patients: Speculation is that the plan could make it difficult for hospital outpatient departments to add new services. Lawrence Vernaglia, an attorney in Boston representing hospitals, health systems, and academic medical centers, told Bloomberg that the changes wouldn’t lower costs to operate an HOPD, but would instead force hospitals to shift costs to commercial payers or individuals because they are more costly to run. Hospitals may also close some off-campus outpatient centers or transfer them to the hospitals’ main site, which would be a huge inconvenience for some Medicare recipients.

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“Dismayed” by the “shortsighted policies,” Tom Nickels, executive vice president of the American Heart Association, said in a statement that his group would submit formal remarks during the comment period, which runs through September.

Patients, Transparency Should be Real Focus
The site-neutral plan makes good sense to Twila Brase, patient advocate and co-founder of Citizens’ Council for Health Freedom in St. Paul, Minnesota. She believes the proposed changes will force hospitals and independent practices to work off the same amount and make their practices work based on that. Some hospitals may try to trim costs by letting doctors go, however — which could compromise patient care. It could also encourage more physicians to run independent practices, which she supports.

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Brase also noted that Obamacare prohibits physician-owned hospitals, which hospitals have been perfectly happy with, because they can collect more than physician offices. In turn, they attempt to purchase independently owned doctors’ offices because the patients who follow the doctor add to the hospital’s pool of patients. This gives them more patients and money, and limits their competition. But it’s not fair that hospitals can “own” physicians, but not the other way around.

“If the hospital can own the doctor, why can’t doctor own the hospital?” she asked.

Dr. Ryan Stanton, an emergency care doctor from Lexington, Kentucky, told LifeZette it’s hard to tell what will happen if site-neutral payments are implemented. Stanton said the issue with the current system is the inflated prices account for undercuts from insurance, Medicaid, and Medicare. There is concern the change would push patients out to lower-level facilities.

Brase contends patients do not receive a lower level of care just because the doctor is not connected to a hospital.

“What would really benefit consumers would be cost transparency and then payments on the actual charge,” Stanton said.

“We need to establish the value and cost of a service, allowing us to bill and get paid a reasonable rate,” Stanton said. “If we eliminated the compensatory inflation, it would save consumers — who are responsible for more and more of their bills — their hard-earned money.”