How Congress Is Using $9 Billion in Medicare Savings to Finance the Budget Deal—and Why Hospitals Hate It

A payment-reform idea that was a long time coming finally passed as a budget offset.

John Boehner.
AP Photo/Andrew Harnik
Nov. 2, 2015, 8:42 a.m.

In Con­gress, there’s much mer­ri­ment after Demo­crats and Re­pub­lic­ans found a way through their dif­fer­ences to pre­vent a gov­ern­ment shut­down, stave off an­oth­er debt-ceil­ing show­down, and cre­ate some long-term sta­bil­ity in the fed­er­al budget.

But while Con­gress breathes a sigh of re­lief over its budget deal, hos­pit­als are fum­ing, furi­ous that law­makers chose to fin­ance part of the bar­gain with a $9 bil­lion Medi­care change.

The deal, which passed in the wee hours Fri­day morn­ing, will change the rate at which Medi­care re­im­burses doc­tors’ of­fices that have been bought by hos­pit­als. Pre­vi­ously, ser­vices at these of­fices would to be re­im­bursed at the rates paid to hos­pit­als. Cur­rently, hos­pit­als are re­im­bursed at high­er rates than phys­i­cian’s of­fices be­cause, the ar­gu­ment goes, of the ad­di­tion­al ex­penses, such as be­ing open 24 hours a day and main­tain­ing standby ca­pa­city.

But un­der the new deal, these hos­pit­al-owned doc­tors’ of­fices will be re­im­bursed at the same rate as oth­er doc­tors’ of­fices for their ser­vices.

Health and Hu­man Ser­vices Sec­ret­ary Sylvia Bur­well touted the change as an­oth­er step to­ward con­trolling health care costs: “In the piece of le­gis­la­tion that we see be­fore us, the site-neut­ral pay­ment is­sue, which was something we have had in our budget, which has been taken in a dif­fer­ent form, but is con­tin­ued pro­gress on things we think will have down­ward price pres­sure and help this is­sue over­all for the na­tion,” Bur­well said in a brief­ing with re­port­ers on Thursday, be­fore the Sen­ate also passed the bill.

The ar­gu­ment for “site-neut­ral pay­ment”—as the new re­gime is called—is two­fold: Not only does it keep Medi­care from over­pay­ing for ser­vices, but it also takes away in­cent­ive for hos­pit­als to buy freest­and­ing phys­i­cians of­fices and, con­sequently, for pro­viders to con­sol­id­ate.

“Medi­care has a prob­lem in that it pays a dif­fer­ent amount for the same ser­vices if the ser­vices are provided in a dif­fer­ent place,” said Dan Mendel­son, CEO of Avalere Health, an in­de­pend­ent con­sult­ing firm. Now, he said, “if you do the same thing, you’ll get the same amount.”

In ad­di­tion to sav­ing Medi­care dol­lars, it’s also ex­pec­ted to drive down the num­ber of pro­vider ac­quis­i­tions. “This makes it less luc­rat­ive for a hos­pit­al to buy a phys­i­cian prac­tice, so it re­duces the eco­nom­ic value to the hos­pit­al,” Mendel­son said.

Hos­pit­als see it dif­fer­ently, and they’re lob­by­ing hard against the change: The Amer­ic­an Hos­pit­al As­so­ci­ation re­leased a state­ment earli­er this week warn­ing the policy could have un­in­ten­ded con­sequences for Medi­care pa­tients.

“This un­tested idea may en­danger pa­tient ac­cess to care, es­pe­cially among pa­tients who are sick­er, the poor, minor­it­ies, and seni­ors who of­ten re­ceive care in hos­pit­al out­pa­tient de­part­ments,” wrote Thomas Nick­els, AHA’s ex­ec­ut­ive vice pres­id­ent of gov­ern­ment re­la­tions and pub­lic policy. “Moreover, rur­al com­munit­ies will be most ad­versely im­pacted, as hos­pit­als will no longer be able to help phys­i­cians in these com­munit­ies con­tin­ue to provide ac­cess to their pa­tients.”

The pro­vi­sion goes in­to ef­fect in 2017. The new rule only ap­plies to prac­tices bought after the ef­fect­ive date. Oth­er, pre­vi­ous pro­pos­als would have ap­plied more broadly, said Tri­cia Neu­man, a seni­or vice pres­id­ent at the Kais­er Fam­ily Found­a­tion.

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