MedPAC: Lack of site-neutral payments driving physician-hospital mergers

Medicare’s payment policy is a major driver of physicians linking up with hospitals, a trend that is raising costs for beneficiaries, new data show.

The data from the Medicare Payment Advisory Commission examined the rate of consolidation and the reasons behind it. The findings released during MedPAC’s meeting Thursday will be part of a report that was requested by Congress in 2018 on physician and hospital consolidation.

Since 2012, billing under Medicare has shifted from physician offices to hospital outpatient clinics. For instance, physician offices saw a 16% decline in service volume of chemotherapy administration from 2012 to 2018. But hospital outpatient departments saw an increase of 52%, according to MedPAC’s analysis of Medicare claims.

Physicians also saw a 2% decrease in billing for office visits from 2012 to 2018, and hospital clinics saw a 37% hike. Data from the Physician Advocacy Institute also found that in 2012 the share of physicians employed by hospitals was 26%. But that figure nearly doubled to 44% in 2018.

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The biggest driver for physician and hospital consolidation is that Medicare pays hospital-based clinics a higher price for the same service than it does physicians' offices, MedPAC said.

“Medicare payment policy encourages [such mergers] regardless if the merger results in improvements in quality or efficiency,” said MedPAC staff member Dan Zabinski at the meeting.

However, if the Centers for Medicare & Medicaid Services (CMS) adopted site-neutral payments between hospital and physician offices, then it could reduce the incentive for such mergers, the commission added.

CMS has sought to cut payments to hospital outpatient department clinics to bring them more in line with physicians' offices. The agency passed a rule that went into effect on Jan. 1, 2019, that cut payments to off-campus clinics. However, a judge struck down the site-neutral payment rule in September, and CMS is deciding whether to appeal.

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The agency decided to continue the site-neutral payment cuts for 2020 despite protests from hospital groups.

MedPAC also looked at the impact of hospital consolidation on healthcare prices. The agency found that since Medicare pays a set rate for an inpatient hospital, a greater market share for a hospital system doesn’t affect payments for such services. However, most studies indicate that hospitals with a large market share get higher prices from commercial insurers, MedPAC said.

But hospital mergers could also provide greater efficiencies that could lower costs, the commission added.

“Federal policy is not driving the consolidation of hospitals and it is not clear what impact consolidation has on hospital cost and quality,” Zabinski said.