A groundswell movement is building to reduce Medicare reimbursements for outpatient services in hospitals to bring them closer in line with reimbursements for the same procedures conducted in a physician’s office.

The Medicare Payment Advisory Commission (MedPAC),  a Congressional agency that provides policy and technical advice to the federal legislators on issues affecting the Medicare program, released its annual report to Congress containing a myriad of recommendations to reduce Medicare costs and make the program more efficient.

Amidst the proposals to eliminate or change the fee-for-service model, bundle acute care services, reduce hospital readmissions, and other long-gestating changes to the program, MedPAC has proposed “equalizing” Medicare payments across settings.

“Medicare’s payment rates often vary for the same (or similar) ambulatory services provided to similar patients in different settings, such as physicians’ offices and OPDs,” the report’s authors write. For example, Medicare pays 141 percent more for a level II echocardiogram performed in a hospital versus a physician’s office, according to the report. “Such variations raise questions about how Medicare should pay for the same service when it is delivered in different settings.”

The process to equalize payments across settings apparently does not mean increasing reimbursement rates paid to physicians practices and reducing the reimbursement rate paid to hospitals to arrive at a rate somewhere between the two. Instead MedPAC envisions this as a potential Medicare savings opportunity in the range of $900 million annually by reducing the reimbursements to hospitals to bring them in line with physicians.

MedPAC has identified 66 groups of procedures that it believes would be appropriate for reimbursement reduction. These procedures fall into two groups:

  • Group 1 includes services for which payment rates could be the same whether they are provided in a freestanding office or in an OPD (because the level of packaging across payment systems is similar).
  • Group 2 includes services for which the gap in payment rates between OPDs and freestanding offices could be narrowed but for which the OPD rate should remain higher to account for the higher level of packaging in the OPPS.

If Medicare implemented the proposed reductions to both groups, “on average, hospitals’ overall Medicare revenue would decline by 0.6 percent, and OPD revenue would fall by 2.7 percent,” the report projects. Another approach would be to initially begin with the areas that have the highest disparity between reimbursements to hospitals and physician’s practices, namely cardiac imaging services, which would result reduce hospitals’ overall Medicare revenue by 0.3 percent, and OPD revenue by 1.5 percent.

While hospitals have argued that the higher rates are necessary because it subsidizes hospital standby capacity, access to care for low-income patients, efforts to improve care coordination, and community outreach,” MedPAC takes a different view:

Building indirect subsidies for these activities into the payment rates for all services does not directly target resources to these activities and can distort prices, which could have unintended consequences. For example, paying much more for cardiac tests in OPDs than in freestanding offices may encourage hospitals to purchase cardiology practices and shift cardiac testing to the OPD setting … In addition, paying higher rates for services provided in OPDs is an inefficient way to reward hospitals for improving care (such as reducing readmissions) because it does not distinguish between hospitals that improve care and reduce spending and those that do not. Although some of the hospitals that benefit from the higher rates that Medicare pays for services delivered in OPDs relative to freestanding offices have lower Medicare spending per episode of care, others have higher spending per episode. Medicare should directly reward those hospitals that improve care and reduce utilization.

Elsewhere the report’s authors state:

We are concerned about the impact of these policies on hospitals that provide ambulatory services to a disproportionate share of low-income patients, who may be more likely than other patients to use an OPD as their usual source of care. Because large reductions in Medicare revenue for these hospitals could adversely affect access to physician services for these patients, we consider a stop-loss policy that would limit the loss of Medicare revenue for these hospitals.

While MedPAC explicitly states that it is not formally recommending the proposed reductions, Congress in the past has enacted many of the panel’s suggestions and proposals.

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