Should Hospitals Get Paid More Than Physician Practices for the Same Service?

WASHINGTON — Should hospital outpatient departments (HOPDs) get paid more by Medicare than independent physician practices for providing the same care? Yes, they absolutely should, panelists said at a briefing here Monday sponsored by the American Hospital Association (AHA).

Ashley Thompson, senior vice president for public policy analysis and development at the AHA, outlined several reasons for the association’s contention that higher HOPD payments are justified:

• HOPDs treat sicker, more complex patients. “A recent study in March of this year found that those patients seen in hospital outpatient departments are lower-income, more likely to be non-white, are likely to be disabled or [have] end-stage renal disease, have more severe comorbidities and complications, and are more likely to be dual eligible for both Medicare and Medicaid,” she said. (The study was funded by the AHA.)
• Hospitals are held to higher standards. “Hospitals actually have more regulatory requirements” than independent physician practices, said Thompson. “We have more reporting that’s required of us — quality and other [standards] — and we have more stringent life and fire safety [rules]. We have to be prepared for disasters and have emergency response plans, and we have greater infection control procedures and more accreditation standards.”
• Hospitals provide disaster care. “We are the main source of care when it comes to disasters, especially at the local level, whether it’s hurricanes, whether it’s floods, or treating COVID cases,” she said.

The AHA was responding to recent congressional initiatives to ramp up “site-neutral” Medicare payments. The movement began in 2015, when Congress passed the Bipartisan Budget Act, which required that new outpatient departments that were not located on a hospital’s campus be paid in a “site-neutral” manner at the same rate as the regular physician fee schedule; that rate was 40% less than the hospitals were currently receiving. That change resulted in $60 million in cuts to hospital payments in 2017 and $74.4 million in 2018, Thompson said. Dedicated emergency departments were exempted from the cut.

In 2016, Congress passed the 21st Century Cures Act, which added other exceptions to the rule, including outpatient departments under construction and off-campus HOPDs in dedicated cancer centers. Additional cuts affecting clinic visits in off-campus HOPDs were passed in 2019 and phased in over 2 years. There are also three other site-neutral payment proposals circulating now on Capitol Hill that would result in another $215 billion in cuts over the next 10 years if they were all enacted, said Jason Kleinman, the AHA’s senior associate director of federal relations.

Kerin Adelson, MD, an oncologist at the MD Anderson Cancer Center in Houston who is focused on breast cancer, noted that because hospital-based oncology clinics care for more underserved patients — including the elderly, the “dual eligibles” who receive both Medicare and Medicaid, and those with complex comorbidities — compared to independent physician practices, they have to have more specialized staff, including compounding pharmacists, interventional radiologists, social workers, and 24-hour on-call services.

“Providing all of this costs money, and site neutrality does not support it,” she said.

Unlike HOPDs, independent physician practices are not overseen by the Joint Commission and therefore may have more lax protocols, Adelson said. “I’ve found nurses mixing chemotherapy treatments up in open closets, not wearing protective equipment, and potentially exposing everyone who walks by to the drugs’ side effects,” she said.

Rural hospital executives at the event said that site-neutral payments would hurt their already-strained finances. “One of our challenges is that we have an aging population that causes us to be disproportionately dependent upon Medicare and Medicaid for our reimbursement,” said Carl Vaagenes, CEO of Alomere Health in Alexandria, Minnesota. “This is a major challenge because we get reimbursed 25% below our actual costs to deliver care to Medicare patients and 48% below our cost” for Medicaid patients.

Speakers also addressed the idea that hospitals are buying up physician practices so that they can reap higher Medicare payment rates. “Medicare reimburses us less than the cost of the care we provide,” said Christy Neuhoff, JD, vice president and chief legal officer at St. Luke’s Health System in Boise, Idaho. “So having higher amounts of it doesn’t really make us more money, but having that additional reimbursement … does make it more viable to take on practices to be able to expand access to Medicare patients.”

In fact, said Adelson, “we need to understand that physician practices are increasingly non-viable financially, which is why they have often approached hospitals for purchase. Many cannot afford to stay in business unless they sell to hospitals.” That’s because “independent physician practices are increasingly burdened by outrageous administrative costs associated with billing, prior authorizations, and peer-to-peer calls when services are rejected.”

And hospitals are nowhere near the largest purchasers of physician practices, said Thompson. Instead, “Private equity is by far the key driver.” She quoted from a Levin Associates survey that found that of the physician practices acquired from 2019 to 2023, 65% were acquired by private equity firms, 14% by physician medical groups, 11% by insurers, and only 6% by hospitals and health systems.

During a question-and-answer session, Thompson was asked whether the AHA was against having physicians practice independently. No, she said. “We support physicians practicing independently, we support them practicing in group practices, we support them practicing at hospitals. I think that there’s going to be a physician shortage in the future, and I think that they deserve a lot of options for how they should proceed forward.”

“I will say though that there is a survey out about new [medical school] graduates and many of the new graduates are not as attracted to independent practice — many of them want to work in groups, or they want to be salaried and employed, due to work/life balance issues and due to a lot of the administrative burden of the contracting and seeking payment for what they provide,” she added.

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