Medicare. Will it stop paying higher rates for hospital-employed physicians?

By Scott Hultstrand, SCMA General Counsel

MEDPAC, the commission appointed by Congress for advice on Medicare issues, just released its 2013 annual report last week, and The Voice will have a number of articles in the coming weeks exploring some of the important issues raised.  Although Congress is not required to follow MEDPAC’s recommendations, the issues addressed in the 2013 annual report give us an indication of where national health policy is heading.

In its latest report, MEDPAC dives right into the deep end, offering its opinion on Medicare paying more for services provided by hospital-employed physicians as compared to independent physicians, arguing that in many cases this higher reimbursement should stop.  So what does MEDPAC recommend and how did it come to its conclusions?  First, MEDPAC recommends that E&M services be paid equally whether the patient is treated in an independent physician’s or a hospital-employed physician’s office.  That’s nothing new, though, since they suggested that in last year’s report.  What is new, though, is that MEDPAC uses a methodology to find tests and services beyond E&M that they believe should either be paid equally or a reduced payment in the hospital outpatient department setting.   

For example, in the chart below MEDPAC describes how level II echocardiograms without contrast should be paid.  It’s pretty simple to discern what is going on here, which is chopping the hospital portion of the payment for echo’s in hospital-employed physician offices so that the total fee equals what Medicare would pay an independent physician:

Before it decided to recommend equity in payment for certain diagnostic tests like the one in the chart above, MEDPAC applied a five-step question process to ensure what in their opinion would be true equality between the test or procedure in a hospital-employed vs. independent physician practice.  This was done to address concerns that have been raised that the higher payments in the outpatient department setting reflect the additional cost of EMTALA standby requirements on hospitals, the possibility that more medically complex patients are seen in hospital-employed physician settings, the added administrative and regulatory complexity of the hospital setting, and the fact that payment for hospital services often combines both primary and ancillary services for which independent physicians are paid separately.  So, in response to these concerns, MEDPAC limited its equal payment recommendations only to those procedures that met the following five criteria:

1.  the test or procedure must be performed in freestanding physician offices more than 50 percent of the time (which indicates their safety and that independent physician payment rates are sufficient to ensure access to care);
2. the payment rate for hospital-employed and independent physicians basically covers the same number and types of services (this is their “apples to apples” criteria);
3. the test or procedure must infrequently lead to an ED visit when provided in a hospital-employed physician practice (to take away the argument that EMTALA costs need to be built into the payment amount);
4. the patient severity must be equal between patients receiving the services from hospital-employed and independent physicians (again an “apples to apples” criteria);  and
5. the test or procedure does not involve 90-day global surgical codes (these costs are higher for hospital-employed physicians performing the procedure in a hospital).

This analysis led to MEDPAC recommended equal payment rates across settings for diagnostic tests like level II echocardiogram without contrast, level II extended EEG, sleep, and cardiovascular studies, bone density tests, and neuropsychological testing (visual exams are included, too).  MEDPAC’s process for determining its reduced, but not equal, payment category was a little different, because the payments for hospital vs. independent were unique enough in terms of the way ancillaries were paid for that “apples to apples” comparisons were more difficult. So the altered methodology resulted in recommendations for reduced payments in the outpatient setting for procedures like level I debridement and destruction, small intestine endoscopy, advanced imaging like cardiac computed tomographic imaging, and tests like level IV pathology.

In the end, based on MEDPAC’s recommendations for either equal or reduced pay for tests and procedures performed by hospital-employed physicians, the estimate is $900 million in Medicare savings per year, and an additional $140 to $380 million in beneficiary cost-sharing reductions.  Obviously, these are not small numbers, especially if you add another $500 million or so for MEDPAC’s previous E&M equalization recommendation.  Interestingly, in the chart below you will see that for some tests and procedures, the fees in the outpatient department setting will actually be higher since the current reimbursement is better for independent physicians, but even with the increases in some areas the net still results in $900 million in savings.  You can also see that cardiac care is most at risk with MEDPAC’s recommendations (in fact, one of MEDPAC’s alternate recommendations is just to reduce cardiac care and leave everything else as is, which it estimates would result in $500 million in Medicare savings per year and $100 million in beneficiary cost-sharing reductions).

 

 

So what does all this mean, and why should physicians take the time to learn what MEDPAC is saying about reimbursement for hospital-employed vs. independent physicians?  Well, right now this is mostly “all talk.”  Congress has not adopted any of these recommendations, and it will likely be a while before they do, especially in light of the complicated nature of any payment reform.  However, this talk is not going away any time soon, and it’s not just Medicare that is considering options like this.  Private insurers, too, have begun to reduce or equalize payments for hospital-employed practices (click here to read a Boston Globe article about this issue, which notes that Cigna is starting to account for the hospital-facility fee in their contracts;  the Wall Street Journal also reported on this issue here).  And from a Congressperson’s perspective, the argument made by MEDPAC in its report about equality in payment could be pretty compelling: equal payments for equal care, resulting in savings of over $1 billion per year.  Of course, we all know it’s not that simple.  But simple arguments like this have a way of catching on.

 

In the end, the most important takeaway is the need for the physician and hospital community to rethink the way that we are paid for medical care.  MEDPAC’s recommendation, whether you are hospital-employed or independent, is just another example of how the fee-for-service payment system as it currently stands is not on a favorable trajectory for physicians in any setting.  For one, SGR and the 30% payment reduction cliff we face each year is reason enough to make some changes.  But we also have all kinds of quality and other requirements being stacked on top of fee-for-service payments, all without base increases that keep up with inflation.  Additionally, with the combo of cost savings standards and quality measurements that are being imposed on physicians, fee-for-service doesn’t allow physicians to benefit much from any efficiencies that are achieved;  instead, the savings go into the pockets of the payer.  Basically, we are in a system of reimbursement that takes away clinical autonomy, continually adds administrative and bureaucratic burdens, and lately seems to find more ways to cut than to provide fair increases.  This doesn’t mean that fee-for-service should be entirely eliminated.  But at the very least it does mean that fee-for-service as we know it needs to change.  And it might also mean that new and creative ways to be paid should be given more consideration, but we’ll save that discussion for a later review of MEDPAC’s recommendations about bundled payments.