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Hospital Consolidation Tied to Rising Costs by Medicare Panel

Nov. 7, 2019, 7:20 PM

Medicare’s efforts to pay the same rate for medical services provided in doctors’ offices and hospital outpatient departments could reduce the growing incentive for hospitals to acquire physician practices, according to an upcoming advisory panel report.

The preliminary report, presented at the Nov. 7 meeting of the Medicare Payment Advisory Commission, will support previous research that found increasing hospital purchases of physician practices is fueling higher prices for commercial insurers and for Medicare, which pays more for services provided in hospital-based settings than at doctors’ offices.

The report, which was requested by the House Energy and Commerce Committee in 2018, will be included in the commission’s March 2020 report to Congress.

The report’s findings appear to validate a move by the Centers for Medicare & Medicaid Services to push ahead in 2020 with a plan for Medicare to pay the same rate for care provided at doctors’ offices and at off-campus, hospital-based clinics despite a loss in court.

The “site-neutral” policy is projected to save Medicare $650 million next year. Program beneficiaries would save another $160 million in out-of-pocket costs under the payment rule finalized Nov. 1 by the CMS. Medicare had previously paid more for medical care provided at the clinics than for similar services offered at doctors’ offices.

The American Hospital Association and nearly 40 hospitals sued to stop the policy, and the U.S. District Court for the District of Columbia ruled in September that the CMS exceeded its statutory authority when it cut the Medicare payment rate for clinic-based services.

Despite the ruling, the CMS will continue the policy in 2020, adding it does “not believe it is appropriate at this time to make a change to the second year of the two-year phase-in” of the site-neutral policy.

“The government has appeal rights, and is still evaluating the rulings and considering, at the time of this writing, whether to appeal from the final judgment,” the CMS wrote.

Hospitals Buy Up Physicians

The upcoming MedPAC report will focus in part on “vertical integration,” which involves hospitals acquiring physician practices or hiring individual physicians from the community.

“Vertical integration increases Medicare program spending and beneficiary cost sharing,” Dan Zabinski, a MedPAC senior analyst, told the commission.

Medicare billing has largely moved from doctors’ offices to hospital outpatient departments as the health-care consolidation trend has grown.

Since 2012, the amount of chemotherapy provided to Medicare beneficiaries in doctors’ offices has fallen 16.6 % while the amount provided at hospital outpatient departments—where the reimbursement rates are higher—increased nearly 53%, Zabinski said.

Medicare payment for echocardiograms provided at doctors’ offices has fallen 4.8% since 2012 but jumped nearly 34% at hospital outpatient departments. And Medicare payments for doctors’ office visits have likewise fallen 2% since 2012 but jumped 37% for visits to hospital outpatient departments.

Vertically integrated physicians, who work at practices acquired by hospitals, refer more patients to hospital-based facilities, “which suggests that referrals are a motivating factor for hospitals to acquire physician practices,” Zabinski said. That can cause Medicare beneficiary travel times to increase with no improvement in care, Zabinski added.

He said vertical integration’s impact on quality of care is “ambiguous.” While some believe vertical integration can improve quality through greater care coordination, “the literature generally does not find material improvement in quality from vertical integration,” Zabinski added.

The commission’s report will also look at how the 340B drug discount program, in which manufacturers provide outpatient drugs at discounted prices, contributes to hospitals’ use of more expensive drugs. Findings on that question will be provided to the commission in January 2020.

To contact the reporter on this story: Tony Pugh in Washington at tpugh@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Andrew Childers at achilders@bloomberglaw.com