An analysis prepared by Avalere for the Physicians Advocacy Institute (PAI) takes a fresh and comprehensive look at Medicare payment rates provided to physician offices compared with off-campus hospital outpatient departments (HOPDs). Medicare payments were also compared for an entire “episode of care” at these different settings for the first time.
The report concludes that not only are some standard procedures paid at a much higher rate to HOPDs than physician offices (e.g. $2,100 in an HOPD vs. $644 in a physician’s office for an echocardiogram), but also that the higher costs for HOPDs extend to the full episode of care (e.g. $5,418 in HOPD vs. $2,862 in a physician’s office for an echocardiogram’s initial visit, follow-up and imaging).
The PAI says it has submitted its report to Congress as it requests comments on a new Medicare policy that would implement “site neutral” payments to equalize the amount paid regardless of treatment location.
While the current payment structure has been in place for some time, it is drawing attention now for multiple reasons, PAI Executive VP Kelly Kenney says. These include the increasing interest in controlling healthcare costs, the perception among physicians of inequitable payment, and the rising phenomenon of HOPDs.
“Hospitals have expanded their outpatient departments into off-campus locations and they’ve purchased physician practices and employed physicians, and then billed at that higher rate,” Kenney told Healthcare Dive. “As that trend has continued, the impact of the differential is greater.”
As for whether a move to site-neutral payment would impact private insurers managing Medicare Advantage plans, the answer is yes and no, says PAI board member and research committee member Matthew Katz. Those Medicare Advantage plans are allowed to pay a negotiated rate for services, and are not held to the Medicare differential.
“However, most of those Medicare Advantage plans do generally follow the differential,” Katz says. It may not be the exact amount, he adds, but they use it as a foundation for their payments to hospitals and physicians.
Kenney and Katz stress the transparency of the differential is critical, and that while there has previously been an understanding about the cost of individual services, the look at episodes of care gives consumers and policy makers a more complete understanding of its impact.
They add the study looked at demographics and a variety of variables, including condition severity and co-morbidities to control for patient differences and to demonstrate that the cost differences do not appear to be due to risk factors.
The reason for the cost increases at HOPDs compared to physician offices appear to be due to the differential as well as the frequency of services and additional services provided.
Katz says the report is not judging the quality or quantity of care provided at either setting, just shining light on how the differences impact the total cost for the full episode of care in either place.
“We’re simply saying there’s more service at a higher cost rate based on that differential, but we’re not suggesting that there’s too much or too little service at any one setting,” he says.
“The differential for policy makers is something they’ll have to further explore to determine whether or not the differential in cost has a complementary differential in quality, as well as whether the service frequency is justified or not based upon site of service and patient care delivery, but those are things we did not get into n this study.”
If there is a change made to level payment amounts, Kenney foresees some natural adjustments in the provision of care.
“If fee-for-service payments were site neutral I think it’s reasonable to assume that over the long term, the economics of providing services would lead to services being provided in the most cost-effective setting possible,” Kenney says. “Having a built-in differential, regardless of whether the setting deserves additional payment for whatever reason, doesn’t seem to make as much sense.”
A further impact of site-neutral payments could be lowered value to operating HOPDs. “Maybe it will slow the trend of hospitals building HOPDs, but it will be up to hospital systems to figure out the economics of that,” Kenney says.
At this stage, the time was simply right to look at the extent of the differential, and add more information to the debate, Kenney adds.
“We felt it was a good time to make sure the full impact of the differential, across an entire episode of care, is understood to provide a fuller picture to the impact of that differential.”