GAO Report Points to Need for Medicare Payment Leveling

Ken Terry

December 24, 2015

The rapidly increasing consolidation of hospitals and physician practices shows the need for a particular kind of Medicare payment reform, according to a new report from the Government Accountability Office (GAO).

At issue in this report is the differential between the payments made to physicians for evaluation and management (E&M) services when they deliver them in a hospital outpatient department (HOPD) and when they perform them in private practices. In 2014, the GAO found Medicare's payment rate for E&M office visits ranged from $58 to $86 higher when they were performed in an HOPD compared with in an independent physician office.

Under current Medicare regulations, a physician who is employed by a hospital is eligible to receive (or his or her institution may receive) the higher rates because an ambulatory care physician who works for a hospital is considered to be part of that institution's outpatient department. Therefore, the allowable payment includes the E&M physician fee schedule facility rate plus a hospital facility fee.

This holds true even if an employed physician's office is 35 miles from the hospital, the GAO pointed out.

The GAO believes this arrangement forces the Centers for Medicare & Medicaid Services (CMS) to pay more for primary care than it should. If the payment rates of employed and nonemployed physicians were equalized, the GAO said in its report, the CMS could save between $1 billion and $2 billion per year.

The situation is growing worse as hospitals acquire more and more physician practices, the report noted. Between 2007 and 2013, the GAO pointed out, the number of "vertically consolidated" hospitals increased from 1400 to 1700, and the number of physicians who worked for those hospitals nearly doubled, rising from 96,000 to 182,000.

Furthermore, the GAO found, the percentage of E&M office visits performed in HOPDs was higher in US counties with higher levels of vertical consolidation during the study period. In counties with the lowest levels of consolidation, the percentage of office visits in HOPDs was 4.1% in 2013; in counties with the highest consolidation levels, it was 14.1%. So, as the percentage of physicians who work for hospitals grows, Medicare is paying progressively more for E&M visits.

The GAO suggested that Congress pass legislation to level the playing field between the payments for E&M visits in HOPDs and private practices, because the CMS does not have statutory authority to do so on its own.

Legislation addressing the issue was included in the budget package Congress passed in early November. However, although this provision won applause from some medical associations, it represents only "the first steps" toward a solution, said Robert Berenson, MD, a health policy expert and a senior fellow at the Urban Institute, in an interview with Medscape Medical News.

The measure would equalize all Medicare rates, not just E&M payments, for hospital-employed physicians who practice off the campus of a hospital and for independent physicians. However, it would not level these rates until 2017, and it would grandfather in hospital-employed physicians who were working off campus before the law was enacted.

Some experts have said that the HOPD payment differential motivates hospitals to employ physicians. It may also motivate some physicians to go to work for hospitals. But Dr Berenson thinks this is only one of many factors, including the provisions of the Medicare Access and CHIP Reauthorization Act of 2015, driving physicians into the arms of hospitals.

Report Disputed

The American Hospital Association, in its official response to the GAO report, said it objected to the GAO's inference that patients treated in HOPD offices were not sicker than those in physician offices. (The GAO actually said that beneficiaries in high-HOPD-visit counties were not sicker than those in low-HOPD-visit counties.)

Although patients seen in HOPDs in some underserved areas are sicker than average, Dr Berenson said, that is not true of the patients whom most employed physicians see in their own offices. "If a hospital employs a physician who's sitting in an office building in the suburbs, they're not seeing sicker patients."

Erik Rasmussen, vice president of legislative affairs for the American Hospital Association, told Medscape Medical News the association disputes the GAO report's findings. Hospitals provide access to critical services that are not available elsewhere in the community, and they must maintain emergency stand-by capacity, he pointed out. "[Medicare] payments should reflect hospital costs, not physician or other location-based payments," he maintained.

This is Medicare's longstanding policy, Dr Berenson said. But any differential payment should be for services related to hospitals' unique capabilities, he argued. "That is not a routine office visit for an earache. That's higher payments for [emergency department] services."

When Dr Berenson was a member of the Medicare Payment Advisory Commission, he recalled, the leveling of differential payments could be done without reducing hospital revenues. Instead of taking money away from hospitals, the CMS could give them more to do what only they can do. But the CMS should not continue to pay employed physicians extra for E&M visits, he said, because that leads to distortions in the system, such as increasing physician employment by hospitals.

"Medicare: Increasing Hospital-Physician Consolidation Highlights Need for Payment Reform." GAO. Full text

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