The U.S. Senate is considering legislation that would mandate “site-neutral” reimbursement in Medicare, eliminating the rule that pays hospitals more for services that can often be provided at a lower cost elsewhere.
The Congressional Budget Office estimates implementing site-neutral payments for hospital outpatient departments could save taxpayers roughly $157 billion over 10 years. Over that time, Medicare enrollees would experience savings of $94 billion to $134 billion in lower premiums and cost sharing.
“Patients should only pay for the care they receive, not for the sign on the door or where they get treated,” said bill sponsor Sen. John Kennedy (R-LA) in a news release. My Same Care, Lower Cost Act is a common-sense reform that expands patients’ health care options, creates greater transparency and reduces taxpayer burden.”
Budget Bill Origin
Congress changed Medicare’s billing practices in 2015 to allow the higher hospital payments through the Bipartisan Budget Act.
“That law established ‘site-neutral’ payments under Medicare, but only for certain newly-constructed facilities,” states Kennedy’s release. “This left most hospitals exempt from the policy.”
The Kennedy bill, known as SB 1629, would close that loophole.
Medicare’s payment practices explain in part why hospitals have invested so heavily in off-campus sites and bought out independent competitors.
Association Support
The Association of Mature American Citizens (AMAC) says the steps outlined in the bill are long overdue.
“This bill directs the Secretary of Health and Human Services to identify at least 66 ambulatory payment classifications (APCs) that can be safely and appropriately reimbursed at the same rate regardless of site of service, using MedPAC’s own recommendations,” states AMAC. “Importantly, emergency and trauma-related services would remain exempt from these provisions, ensuring that urgent care needs continue to receive full support.”
Hospital ‘Revenue Play’
Hospitals have warned that cutting reimbursements will jeopardize service, especially in underserved areas.
The current payment system hurts the health care market by incentivizing consolidation of ownership, says Mark E. Miller, executive vice president of health care at Arnold Ventures
“Certain services in hospitals should be and are paid higher rates,” said Miller. “This includes things like emergency and intensive care units, because they require specialized services and staffing, hospital-level care, and stand-by capacity.”
Beyond that, the practice leads to distortions, says Miller.
“When hospitals purchase physician offices and facilities, they increase the payment with no change in the patients being seen, the services provided, or the quality of care to justify this price increase,” said Miller. “It is a revenue play borne by the taxpayer and beneficiaries.
“Medicare pays up to four times more for routine care at a hospital-owned facility,” said Miller. “Furthermore, this ability to increase prices for the same care contributes to the financial incentives for hospitals to purchase practices and further concentrate their market power.”
Missing Economies of Scale
“Why would large hospitals have to charge more money?” asks Richard Kube, M.D., a pain-management specialist who runs an independent practice in Peoria, Illinois.
“The reality is that a hospital should be less expensive due to economies of scale,” said Kube. “But consolidation appears to have been used as a tactic to limit competition and to lure physicians into the hospital system to lower their own overhead because of the discrepancy in margins between being attached to a hospital versus private practice.”
Other arguments to justify the higher hospital payments don’t add up either, says Kube.
“The broader range of care available in a hospital setting may make a hospital a more attractive option, but it does not justify a higher cost for the same given service provided by a smaller provider, because any additional services provided in the hospital are billed separately, being a value add for the hospital as much as for the patient,” said Kube. “In a general sense, the site-of-service differential is nonsense.”
In addition, higher payments should never be allowed for services coded as “evaluation and management” and “current procedural terminology,” says Kobe.
More Competition
Site-neutrality would make the marketplace more competitive and cut prices, says Miller.
“The value of the law, as we see it, will be taxpayer savings and beneficiary savings mentioned, but importantly, it dampens the incentives for consolidation, which generally increases prices in the commercial sector for businesses and their employees,” said Miller.
Hospitals will find ways around the policy if it is enacted, says Merrill Matthews, a policy analyst and columnist for The Hill.
“Buying physician practices allowed hospitals to encourage or require treatments that paid more under Medicare when performed at the hospital to be done there,” said Matthews.
“While imposing site-neutral billing codes might have an initial impact of lowering Medicare costs, no one should underestimate the ability of hospitals to find other ways to game the system,” said Matthews. “The only way to actually solve this problem is to give Medicare patients a financial incentive to request that any procedures be done in the most cost-effective way. But Congress is very unlikely to take that step.”
Kevin Stone ([email protected]) writes from Arlington, Texas.
