Site-neutral payments draw blanket, bipartisan support at House Budget hearing

Rampant consolidation within the healthcare industry is proving to be a rare point of unity among Republican and Democratic lawmakers in the House.

A House Budget Committee hearing held Thursday was largely devoid of interparty finger pointing, and more than a few times saw lawmakers applauding health policy decisions of administrations hailing from the opposing party.

The lawmakers similarly weren’t shy about directing their questions to witnesses representing think tanks typically on the opposite side of the ideological spectrum. Each brought testimonies and responses warning of unsustainable spending, dwindling independent providers and patient access concerns.

“I find myself in an awkward situation here where I’m agreeing more with the Democrat witness than maybe in any other hearing,” Committee Chair Jodey Arrington, R-Texas, quipped in response to the minority witness Sophia Tripoli, senior director of health policy at left-leaning Families USA.

Though consolidation and vertical integration among payers and pharmacy benefit managers earned some scrutiny, the hearing was largely centered on clustering provider space.

Here, Congressional Budget Office Director of Health Analysis Chapin White told the lawmakers the share of hospitals affiliated with health system rose from 53% in 2005 to 68% in 2022, while the share of physicians employed by a hospital or health system rose from 29% in 2012 to 41% in 2022 (per a 2023 American Medical Association policy paper).

Those trends, he said, allow providers to negotiate higher prices from private insurers and, either through taxed employee wages or premium tax credits for plans, translate to a greater federal deficit. Though their rates are set by the government, fee-for-service programs in Medicare and Medicaid can also be hit when consolidated providers are incentivized to increase utilization, provide more intensive services or direct care to more costly settings, he said.

“If hospitals acquire hospital practices, certain services provided by those physicians may be billed at hospital outpatient rates, which include facility fees and are generally higher than the rates paid to independent physician practices,” White told lawmakers during the hearing.

A policy to address such facility fees, generally referred to as site-neutral payments, received blanket endorsements from the hearing’s witnesses and near-universal agreement from the lawmakers.

Higher outpatient payments to hospital-affiliated care sites “gives a major incentive for hospitals to acquire physicians’ practices and bill at the higher Medicare rate,” Benedic Ippolito, senior fellow in economic policy studies at the center-right-leaning American Enterprise Institute, told lawmakers.

Site-neutral payments are a “no-brainer” and “corrects a fundamental distortion” in the Medicare payment system that is driving practice acquisitions, Families USA’s Tripoli added while noting The Medicare Payment Advisory Commission’s longstanding support for the policy. The CBO’s White said that a lack of site-neutrality is “a heavy thumb on the scale” toward consolidation, and named it alongside stronger federal antitrust capacity as federal policies the office projects would slow provider consolidation “by up to a quarter.”

The House has already tried to push site-neutral payments into law, having included the policy change in the Lower Costs, More Transparency Act passed in December. Major hospital lobbies, however, have focused their messaging toward blunting the policy change, previously arguing that it would cut hospitals’ pay and “disregards important differences in patient safety and quality standards in these facilities.”

Arrington and other lawmakers in the committee took the side of Thursday’s witnesses.

“I just don’t see any businessperson in American who would run their business with that kind of incentive structure, where you’re paying one entity more than you are another entity for the same procedure, same outcome and in many instances the same healthcare professionals,” the chairman said. “This has been going on for a long time. We could save $150 billion and we can reduce the out-of-pocket costs for seniors, and we can just improve the system altogether. It seems to me the most obvious [solution].”

Witnesses acknowledged that much of the damage has already been done. Ippolito said that many of the country’s healthcare markets “are already relatively consolidated,” but that any action in site-neutral payments, statutory support against entities purchasing numerous small organizations (roll-ups) and efforts to reduce practitioners’ administrative burdens would stem further bleeding.

Stemming merger and acquisition activity could threaten care access in cases where a failing hospital could be saved by joining a larger organization, Ippolito acknowledged, “however I do not think that’s a compelling argument for inaction. Congress can instead pass legislation that comprehensively addresses poorly designed incentives that encourage consolidation and, if needed, subsidize or help out those rural or otherwise distressed providers directly [and] in ways that do not further incentivize consolidation.”

Adam Bruggeman, M.D., an orthopedic surgeon with an independent practice at Texas Spine Care Center, outlined the financial pressures that push many practices to “a breaking point.” Between agreement on site-neutral payments and reduced administrative burden, he drew lawmakers’ sympathy by highlighting Medicare payments to physicians that have lately fallen below inflation.

“There’s just nobody who would stay in business if they made less money compared to inflation every year,” he said responding to questions from Rep. Jimmy Panetta, D-Calif.

White said that dipping Medicare pay was one of several factors driving consolidation and that CBO would look closely at increased payments’ impact if asked, but that his inclination is that “by far the dominant effect” would be increased federal spending. Ippolito said that indexing the payments to match inflation “would likely increase participation in the program … [and] increase the number of independent practitioners” but acknowledged that he didn’t “have a great sense” of a pay bump’s potential magnitude.

Echoing his arguments from prior healthcare competition hearings, Rep. Michael Burgess, M.D., R-Texas, pushed the witnesses on whether overturning the Affordable Care Act’s ban on physician-owned hospitals could move the needle on consolidation. Bruggeman was receptive to the suggestion.

“We talk about consolidation—if you’re able to knock out all of your competitors and not let physicians build hospitals, not let physicians expand hospitals, what’s going to happen? We’re going to see more consolidation in the hospital market, which is going to drive up costs,” he told Burgess. “And we know from all the data physician-owned hospitals provide at least, if not better, quality of care and they do it at a lower cost. It just makes sense to get rid of that ban.”

White was more hesitant, saying that CBO recognizes that the move could potentially increase competition but that the office expects it would also run up federal spending by increasing utilization.

“You expect, but can you provide us the data?” Burgess replied. “Can you provide us the models that you’ve used to make those assumptions? Because I think they’re fundamentally wrong, and I would be happy to debate that with facts but not ‘what we expect would happen.’ I’d like to see actual numbers on that.”

Witness and lawmakers acknowledged that provider consolidation doesn’t occur in a vacuum. Bruggeman pointed to his home state of Texas, where he said the top three insurance carriers currently control 82% of the market.

“Well, what are physicians to do to try and contract and negotiate? They’re gonna have to consolidate. What are hospitals going to do [when] the top three only control 40% of the market? They’re going to have to consolidate,” he said.

The surgeon also highlighted the recent Change Healthcare cyberattack and its far-reaching service outage as an example of vertical consolidation directly interfering with a functioning national health system.