It’s Time For Medicare To Move Beyond Location, Location, Location

What’s the difference between getting an x-ray at the hospital and getting one at the doctor’s office?

The former could cost a lot more than the latter.

Medicare often reimburses hospitals more than it pays doctor’s offices for the same procedure. Hospitals claim these payment differentials are necessary because they are subject to more extensive regulatory requirements and face other fees; higher payments offset those costs.

In reality, these uneven payments simply incentivize the most wasteful and monopolistic tendencies in American health care.

Lawmakers can address this problem by making Medicare reimbursements “site-neutral.” Paying hospitals and doctors the same amount for equivalent services would save Medicare beneficiaries billions in premium costs—and save taxpayers even more.

Flattening reimbursement structures would also boost competition by discouraging hospitals from snapping up private physician practices solely so they can take advantage of the payment arbitrage. More competition means more choices, higher quality, and lower prices.

Site-neutral payments are neither a new nor controversial idea. Both the Obama and Trump administrations proposed rules that would have brought payments in line between doctors and hospitals. MedPAC—the independent, non-partisan agency that advises Congress on entitlement programs—has concluded that there are at least 50 services that can be administered and billed the same in both inpatient and outpatient settings.

Still, the chasm persists. While the actual difference varies by site and service, on average, revenue from services delivered in doctor’s offices would have run 80% higher had they been administered in a hospital. Last year, Medicare paid 141% more for the first hour of a chemotherapy infusion in a hospital than one that took place in a freestanding doctor’s office.

At a basic level, this is wasteful. Taxpayers are forking over more money for certain services based on where Medicare enrollees receive them.

We can understand just how wasteful by considering the savings site-neutral payments would bring about. According to the Committee for a Responsible Federal Budget, site-neutral payments would save Medicare beneficiaries $94 billion in premiums and the Medicare program $153 billion over a decade.

Changing Medicare’s payment policies would also realign incentives such that private insurance premiums and patient out-of-pocket spending outside Medicare would fall, resulting in a grand total of $471 billion in savings over a decade. National health expenditures could fall by $672 billion.

Considering that the Medicare Part A hospital insurance trust fund is currently projected to run out of money by 2028, those are savings the program could desperately use.

But these cost savings are not the only benefit of site-neutral payments. MedPAC and other experts have shown that Medicare payment differentials encourage hospitals to buy physician practices. Today, three-quarters of physicians are employed by some larger entity. Of those doctors, just over 52% are owned by hospitals and health systems—an 11% increase from just two years prior.

This consolidation is a recipe for higher prices. One study found that the price of services provided by doctors increased 14% after those doctors were acquired by hospitals.

Proponents of consolidation argue that doctors perform better as part of a health system, where they have more resources to work with. But bigger is not necessarily better. Researchers at Harvard Medical School found that hospital mergers had little to no impact on quality of care—save for a few patients who reported moderately worse experiences post-merger.

If anything, independent physicians have a leg up on their corporate counterparts. With a smaller, more consistent roster of patients, independent physicians can spend more time with those under their care. That’s good news, considering truncated doctor visits are associated with subpar care, and can strain the doctor-patient relationship.

Site-specific Medicare reimbursements encourage waste and sap competition. Shifting to a site-neutral payment model would save money for patients and taxpayers and preserve the dwindling number of independent physicians. Talk about a win-win.