Medicare, insurers questioning payment differences based on where care is delivered

Image by ShellyS via Flickr

Image by ShellyS via Flickr

Health insurers and the federal Centers for Medicare & Medicaid Services (CMS) pay much different rates for clinical services, depending on where care is delivered. Typically, hospitals are paid more than physician practices for the same clinical service.

This payment variation has drawn attention recently: CMS and the Medicare Payment Advisory Committee (MedPAC) have proposed eliminating different payments based on the site of service. In May, MedPAC Executive Director Mark Miller said Medicare should address these price differences immediately to eliminate the incentive to deliver care in high-cost settings, wrote John Tozzi at Bloomberg Businessweek.

Last year, the Society of General Internal Medicine also called for eliminating the site-of-service differential in a report on payment reform (PDF). “Medicare pays $450 for an echocardiogram done in a hospital and only $180 for the same procedure in a physician’s office,” the SGIM report said, citing MedPAC data.

Such differences in payment are among the reasons hospitals buy physician practices. When writing about physician group acquisitions, health care journalists should ask if the new entity intends to charge more for the same services, resulting in higher costs to consumers and insurers. When consumers pay a larger share of the cost of care than they paid in the past, any increase in costs is significant.

In a recent report, Price Waterhouse Coopers said the site-of-service differential drives up health care spending overall.

Oncology drugs administered in a hospital outpatient department can cost twice as much as when those same drugs are administered in a physician’s office, PwC’s Health Research Institute says in a report, “Behind the Numbers, 2015.” Hospitals, for example, charge more than doctors’ offices charge to deliver the same drugs to patients with cancer, PwC says. Here are three examples from PwC:

  • Alimta (pemetrexed disodium), for patients with lung cancer, $5,460 in a physician’s office and $9,710 (an increase of 78 percent) in a hospital outpatient clinic.
  • Herceptin (trastuzumab), for patients with breast cancer, $2,740 in a physician’s office and $5,350 (95 percent more) in a hospital outpatient clinic
  • Avastin (bevacizumab), for patients with colon cancer, $6,620 versus $14,100 (an increase of 113 percent).

“Once hospitals and health systems acquire in-house physician practices, they have the ability to immediately escalate physician charges to the higher hospital rate, which will likely trigger a rise in spending next year,” PwC reports. The Advisory Board covered this issue in its Daily Briefing earlier this week.

Eliminating higher payments for certain oncology-related services, such as chemotherapy, could save patients thousands of dollars, said Highmark Inc., a health insurer serving consumers in western Pennsylvania and West Virginia. In February, Highmark announced that, effective April 1, it would no longer pay more for chemotherapy drugs administered in hospitals and other high-cost settings.

“The dramatic increase in the cost of infusion chemotherapy treatment has been occurring in western Pennsylvania and other parts of the country as health systems and large hospitals purchase physician oncology practices, then bill for infusion chemotherapy services as a higher-cost hospital outpatient service, even though the treatment continues to be provided in a physician office,” Highmark said. Infusion therapy is administered intravenously or by a needle.

As a result of this policy change, Highmark members could save $1,000 to $3,500 or more for each treatment depending on the drug involved and how costs apply to each member’s deductible and copayment, said Donald R. Fischer, MD, the health plan’s chief medical officer. The change will have no effect on care quality, he added.

A health policy brief from the Robert Wood Johnson Foundation describes the proposals designed to eliminate the site-of-service differences in Medicare’s payment systems. Published in Health Affairs (PDF) July 24, the brief explains the origin of differential payments and the debate over approaches proposed for what are called site-neutral payments.

Sometimes a patient’s clinical condition requires treatment in more costly settings, the brief explains, but often the decision about where to treat a patient is discretionary.

Such discretion may lead some physicians or hospitals to deliver more services in high-cost settings. Earlier this year, a judge in the U.S. District Court in Idaho found that St. Luke’s Health System in Boise violated antitrust law when it acquired the Saltzer Medical Group, a 40-physician practice in nearby Nampa. During the trial, a consultant for St. Luke’s estimated that billing at the hospital-based rate rather than the physician-based rate would be more than 60 percent higher.


1 thought on “Medicare, insurers questioning payment differences based on where care is delivered

  1. Robert Bowman

    Numerous examples exist of perverse payment designs that pay less or that are more likely to penalize hospitals and practices in counties where lower to lowest concentrations of clinicians are found.
    1. The same service by an outpatient hospital compared to physicians as noted
    2. Rural and smaller hospitals
    3. Pay for performance
    4. Primary care and basic services paid less than procedural

    Payment designs work to marginalize health care where most Americans need care also impacting local health spending, jobs, social organization, leadership, and economic impact – factors that continue to divide our nation into a few advantaged and more disadvantaged.

    In 1000 Super Center zip codes with 1% of the land area or , the sites of care receive all lines of revenue with the top reimbursement in each line and 45% of physicians are stacked into sites with 12% of the population. In 40,000 zip codes with 68% of Americans, workforce is much more likely to be provided by primary care clinicians and those who deliver basic services as well as smaller and rural hospitals and practices. Special revenue lines such as graduate medical education and National Institutes of Health research dollars go exclusively to locations that already have top clinician concentrations. GME helps to shape physician workforce toward just 6 states with top concentrations, away from primary care, and away from care where needed because GME is concentrated in sites with top clinician concentration sites with expansions involving physicians that deliver highly specialized and most costly care. Even shortage areas are poorly targeted with locations receiving such funding despite higher or even highest concentrations of clinicians.

    The solutions are easy to see, but are difficult to accomplish because those doing well are highly organized and shape most of the health information and health care designs. Funding must be redirected away from top concentration locations and toward locations with most Americans, especially for primary care and basic services and small or rural hospitals. Restoration of primary care workforce and workforce to deliver basic services is essential for such locations, but requires payment and training design changes. These are also locations with much faster population growth and even greater growth in demand for primary care and basic services due to aging and insurance changes. Higher complexity, more barriers to care, and social determinant limitations also are found where care is needed. This is why Pay for Performance and Readmission Penalties are more likely for those providing care where needed (Hong, others).

    Payment designs and innovations are most often about cost cutting – a reaction to too much paid for too little received. Innovation often distracts from the basic workforce, basic services, and basic payment foci that are required for recovery of health access for most Americans. America must return health policy to a focus upon care delivery and delivery of care where needed, rather than continued policies intent upon cost cutting or innovation.

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