In the last few years, there has been something of an acquisition boom in doctors’ practices, as hospitals have been snapping them up.
Congress may have just cut a deal to slow down all that deal making. As part of the big budget agreement between the White House and congressional leaders, lawmakers want to take away a big incentive driving those mergers: the higher prices that doctors’ offices could charge Medicare when they were owned by a hospital.
The way it works now, an orthopedist who sets a bone in a private practice office is paid less than that same orthopedist in that same office if it is owned by a hospital. That difference can lead to bigger costs for the federal government — and for seniors, who have to pay a portion of the cost of their medical visits.
Hospitals argue that their higher payments rightly reflect their higher costs of providing care: They are bound by more requirements, tend to see sicker patients and have to subsidize costly services, like emergency rooms, that independent doctors do not. Nevertheless, the price differences have been criticized by the Medicare Payment Advisory Commission (MedPAC), which suggests improvements to Congress, and by the Obama administration, which has sought to equalize the prices in its budget.
The critics say that paying higher prices just because of who owns a practice drives up health care costs and distorts business incentives. Studies show that the mergers can also drive up costs for privately insured patients.
The current budget deal, if it passes, would let any current hospital-owned practice continue to pocket the higher prices, but it would prevent future practices from being able to get higher payments just by merging with a hospital. In order to get hospital-size payments in the future, doctors’ offices will need to be located “on campus.”
“This is a big deal,” said Robert Berenson, a fellow at the Urban Institute and a former vice chairman of MedPAC. “Through the back door, they made a change they couldn’t do through the front door, it seems to me.”
The legislation, as written, might create some distortions of its own. By setting payment based on the location of doctors’ offices and not the services they are providing, the new rule might discourage hospitals from expanding services into underserved neighborhoods. The MedPAC suggestion was that the prices should be the same for certain services in all settings, not that the difference should depend on the location of the practice.
The change in policy probably won’t completely erase the recent trend because the ability to charge higher prices isn’t the only reason hospitals and doctors are merging. Other parts of Medicare are increasingly pushing doctors and hospitals to work together closely to manage the health of patients, a goal some people think is easier to achieve when everyone works in the same organization. Congress has also been increasing pressure on doctors to measure and report the quality of the care they deliver, something that small, independent practices are finding hard to do without assistance. Still, Congress may be eliminating one big financial incentive for these mergers.