By Josh Umbehr
The United States is facing a healthcare affordability crisis with inflation expected to drive costs up by 6.5 percent next year. While Americans worry about the rising costs of medical care, many of the underlying causes of higher prices are overlooked. Bad government policies, especially Medicare reimbursement policies, foster an environment of consolidation in the healthcare industry, leading to higher prices that hurt everyone. Medicare policies must be changed to bring down costs.
Medicare accounts for almost a quarter of all U.S. health expenditures. In addition, Medicare covers a population with the highest utilization rate of the healthcare system. Individuals over 65 make up only 17 percent of the population but are responsible for roughly 35 percent of all healthcare spending.
The structure of Medicare requires that the government dictate the prices it will pay as well as the out-of-pocket co-pays patients will have to pay. In determining these prices, Medicare should focus on patient care and reimburse doctors and medical practices the same amounts for providing the same care. However, that is not how the system operates today.
Medicare bases their reimbursement amount on the “type” of provider, but that many of these off-campus HOPDs look more like a regular doctor’s office. So, when a patient receives medical services from a facility owned by a hospital, Medicare reimburses at a higher rate than if the service was provided at a private practice.
This dual reimbursement rate creates an unintended incentive: If a hospital can buy a private medical practice, it will be considered part of its outpatient department, and Medicare will pay higher reimbursement rates than its physician-owned competitors. Consolidation within the healthcare industry is a sad consequence of these policies.
A report to Congress on Medicare found that “in recent years, the number of services billed in HOPDs (Hospital Outpatient Departments) has been increasing, while the number of services provided in freestanding offices has been declining.” And researchers from Harvard University report that “consolidation of healthcare entities and services is a key driver of higher prices and tends to reduce rather than increase patient satisfaction.” When hospitals buy smaller competitors, there is less competition, and the hospital gains market power. More market power enables hospitals to raise prices without competitors and market forces to check them.
Congress should mandate that Medicare implement site-neutral reimbursements that would require payments of the same amount regardless of where the service is provided and whether a hospital owns a physician practice. Site-neutral payments would remove the incentive for hospitals to buy small practices and help keep healthcare costs from rising. The Medicare Payment Advisory Commission (MedPAC), an independent and non-partisan commission established by Congress to advise legislators on Medicare issues, recommended in its June annual report that Congress adopt site-neutral payments “because of the recent growth in hospital acquisition of physician practices and our own empirical analysis.”
MedPAC expects site-neutral payments over time would decrease Medicare spending “because it would reduce incentives for hospitals to acquire physician practices and bill for services under the usually higher-paying [outpatient provider fees].” It also anticipates Medicare beneficiaries would be better off under site neutrality, noting that “beneficiaries would incur lower cost-sharing liability for site-neutral services, and we expect that they would continue to have access to the services.”
A 2023 study estimates that a site-neutral policy would result in $231 billion in savings for the federal government over a decade and another $152 billion in savings for patients paying out-of-pocket costs.
Fairness in Medicare pricing and lower out-of-pocket costs for seniors and all Americans is a bipartisan issue. Site-neutral payments are a common-sense solution. There is no reason for Congress to hesitate to pass such vital reforms.
Dr. Josh Umbehr, M.D. is a Family Medicine Specialist in Wichita, KS.
