By Joseph Burns
In an excellent article for The New York Times’ Upshot blog, Margot Sanger-Katz explained what happens when a hospital or health system buys a physician’s group. As she points out, doctors’ fees often rise sharply when hospitals acquire doctors’ practices. In her article, she explains that the Obama administration has proposed to eliminate the payment rules that allow physicians’ fees to rise sharply after such an acquisition. She predicted that that hospital and physician groups will protest the move, and indeed some have.
But Sanger-Katz reported that the recommendation has a chance of being adopted.
Currently, she wrote, “Medicare, the government health insurance program for those 65 and over or the disabled, pays one price to independent doctors and another to doctors who work for large health systems – even if they are performing the exact same service in the exact same place.”
The reason the federal Centers for Medicare & Medicaid Services pays more for the same service is that it assumes hospital care costs more because hospitals have more overhead than physicians have in private practice. So, Medicare has adjusted its payment rules over the years to result in this payment gap. Health insurers generally adopt CMS’ policies, exacerbating the differences in payment. Plus, by acquiring physicians groups and other hospitals, large hospitals and health systems can extract better payment during negotiations with health insurers. All of these factors drive up health costs.
Sanger-Katz provides a good example of how payment strategies cause hospitals to buy physician groups. As an example, she reported that in 2009 Medicare reduced what it paid cardiologists in private practice for certain tests by about one third. But Medicare did not cut what it paid cardiologists who work for hospitals and provide the same test because CMS has different payment systems and fee schedules for physicians and hospitals. Over the next five years, the number of independent cardiologists declined as hospitals acquired their practices.
A survey from the AmericanCollegeof Cardiology showed that from 2007 to 2012, the number of cardiologists working for hospitals more than tripled and the proportion of cardiologists in private practice dropped from 59 percent to 36 percent, Sanger-Katz wrote.
In the budget for fiscal 2016 for the federal Department of Health and Human Services, the Obama administration wants to provide ambulatory care in what it calls the most appropriate clinical setting. HHS proposed this idea for 2015, but it was rejected.
Here’s the wording from the HHS budget under the heading: Encourage Efficient Care by Improving Incentives to Provide Care in the Most Appropriate Ambulatory Setting.
“Evidence suggests that in recent years, billing of many ambulatory services has been shifting from physicians’ offices to the usually higher paid hospital outpatient department setting, increasing Medicare spending and beneficiary cost-sharing. This proposal helps mitigate the financial implications of this trend by lowering payment for services provided in off-campus hospital outpatient departments…”
HHS would implement this change over four years beginning Jan. 1, 2017, and expects to save $29.5 billion over 10 years.
Doctors working in hospitals would still get the higher hospital rate, but when a hospital acquires a physician group, that group would not get an increase in payment and most of the savings would come from hospital payments, Sanger-Katz reported. Not surprisingly, hospitals oppose the proposal, she wrote.
The American Hospital Association issued a 40-page report supporting its position. The report, Comparison of Care in Hospital Outpatient Departments and Physician Offices is available from the AHA. Written by KNG Health Consulting, the report says patients who get care in hospital outpatient departments are more likely to be minority, poorer, have more severe chronic conditions and have higher prior utilization of hospitals and emergency departments than patients treated in physician offices.
