A breast cancer patient could save $1,500 per year in out-of-pocket costs if Medicare reimbursed hospitals and independent health care providers equally for the same service, and taxpayers would spend $7,750 less, according to a study conducted by Avalere Health for the American Cancer Society Action Network (ACSAN).
The study looked at the Medicare practice of paying health care providers by setting. Hospital out-patient departments are paid significantly more money than independent providers for the same services to compensate hospitals for higher overhead and equipment costs.
The report also found that “hospital outpatient departments” were reimbursed at a rate three times higher than what an independent practice would charge. In some cases, the reimbursement rates were five to six times higher.
“Payment policies should not create incentives that push patients into higher cost settings when the same care can be provided in a lower cost, often preferable, site of care,” the report states.
The House Budget Committee Health Care Task Force is examining the implementation of a “site-neutral” reimbursement system and held a roundtable discussion on the issue after ACSAN released its report on October 23.
Why Hospitals Are Paid More
Hospitals are allowed to charge more and collect more money from Medicare than other health care providers, which impacts prices across the board, Richard A. Kube, M.D., founder of Prairie Spine & Pain Institute, an independent orthopedic practice in Illinois, told the Heartland Daily Podcast.
“If I want to pay cash for an MRI or a scan in Peoria, I don’t have an independent option,” said Kube. “I must go to one of the two major hospitals and I’m going to pay a couple of thousand dollars for that. And maybe the insurance company won’t approve it. I know that I can go to another clinic in Bloomington and for $600 get the exact same MRI.”
The costs really add up for major surgeries done in hospitals, says Kobe.
“It is not so much the site-of-service differential but the amount of added costs that goes into keeping these giant administrative superstructures in place,” said Kube.
In other markets, consumers can save more when they deal with a large distributor that has the advantage of economies of scale, says Kobe.
“Hospitals should have that same opportunity,” said Kube. “It’s the only industry where you go to the mass producer, and you pay more.”
Consolidation Spiral
Because hospitals get higher reimbursements, they are at an advantage when dealing with rising administrative costs from government regulations. Independent practices have a hard time competing and may be inclined to merge with large hospital groups. The extra money hospitals collect from Medicare puts them in a better position to buy out practices. What results is a monopoly.
“The price will go up and value is going to go down because the hospitals no longer have to worry about competition,” says Kube. “Years ago, when we had an independent imaging center in Peoria, I could get same-week, sometimes same-day MRIs all the time. Now it takes a month.”
‘Subsidy to Poach’
The likelihood Congress will impose a site-neutral reimbursement system is a big “if,” says Kube, because hospitals have become big business and are in a position to protect their turf.
“It’s based on a monopoly,” said Kube. “The site of service differential can start unraveling the whole thing. All of a sudden, their margins would change drastically. They would no longer have that subsidy to poach all the private practices.”
Kube says he has personally experienced threats and pressure to use hospital imaging services.
“I’m a sub-specialist,” said Kube. “I read probably thousands of MRIs a year and for someone like me who knows the kinds of questions to ask and how [things work, it] it is inappropriate. If they’re willing to do those kinds of things, I’d expect them to spread as many lobby dollars as they can to push. And frankly, the insurance industry would be aligned with them.”
Compete on Price/Quality
Congress is making some headway on establishing site-neutral reimbursements and the Trump administration made progress through executive orders, but permanent reforms have never been enacted.
“The fundamental problem with all provider reimbursements in government health care programs is the fact that bureaucrats or elected officials are setting the payments,” said Roger Stark, M.D., a senior fellow at the Washington Policy Center. “These government officials are subject to intense lobbying by special interest groups. The hospital associations in the U.S. are well organized and pretty well funded, and overall command more attention than physician groups. Hence, hospitals and their clinics continue to get higher reimbursements.
“In a truly free market health care system, all providers would compete on both quality and pricing. Physician offices, with less overhead, would have a definite advantage over high-overhead hospitals for many patient services.”
Site-neutral reimbursement has bipartisan support in Congress, Kube wrote, in a Newsweek op-ed.
“Several congressional committees are now debating a health reform package that includes provisions to establish site neutrality in limited circumstances,” wrote Kobe. “That would be a vital first step, one which physicians across the country hope will soon expand to other services. After all, what could be more fair than reimbursing providers the same amount for the same service?”
AnneMarie Schieber (amschieber@icloud.com) is the managing editor of Health Care News.
