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CMS proposes site-neutral payments for some physician services



September 28, 2018
Area(s) of Interest: Advocacy Payor Issues and Reimbursement 

The Centers for Medicare and Medicaid Services (CMS) has proposed eliminating the Medicare site of service payment differential for physician services. Under the proposed policy, Medicare would pay the same amount for office visit services provided by physicians in “off-campus” hospital outpatient departments as it would for the same office visit service provided in a physician’s office.

Currently, Medicare pays a “facility fee” that results in a much higher rate for the same service when performed in outpatient clinics owned by hospitals, rather than in a physician’s office. For example, cardiac imaging payments are more than triple when patients receive care at a hospital outpatient department instead of a physician’s office – roughly $2,100 vs. $655.

This rule change would result in significant savings for Medicare and its beneficiaries and foster greater competition in the health care market.

Health care policy experts have demonstrated that this site of service payment differential has incentivized hospitals to acquire physician practices, with an 86 percent increase between 2012 -2015 in number of physician practices owned by hospitals nationwide. This unprecedented trend in hospital acquisition of physician practices has caused provider consolidation in the marketplace that has decreased competition, led to increased prices and premiums in the private sector, and increased Medicare costs. Medicare hospital spending has increased 60 percent since 2000.

UC Berkeley researchers recently reported that 40 percent of California physicians now work for foundations owned by hospitals, up from 25 percent in 2010. Nationwide, nearly 33 percent of physicians were employed by hospitals in 2014 (the most recent data available), up from 29 percent in 2012. 

Most health care economists, policymakers and clinicians are now supporting site neutral payments in Medicare to reverse the policies that have artificially driven hospital-physician consolidation and increased costs. 

The California Medical Association (CMA) believes that two factors led to this hospital-physician consolidation: The higher facility fees for hospital outpatient services and the low Medicare physician payment rates.

Medicare physician payments have remained flat since 2001, and now lag at least 25 percent behind the costs to operate a medical practice. While payments have remained flat, the administrative and reporting burdens of running a practice have dramatically increased. Without the resources to invest in practice infrastructure, such as EHRs and quality improvement activities now required for participation in value-based payment programs, independent practices have been driven to seek resources and assistance from hospitals.   

To reverse the trend in hospitals acquiring physician practices and the consolidation in the market that has increased costs, CMA is recommending the following:

  • CMS should eliminate the site of service payment differential for ALL services (not just office visits) and ALL settings (off campus and on-campus outpatient departments, except emergency departments).
  • CMS should reinvest the savings achieved by site neutrality in a budget neutral way by reinvesting in physician payment so that independent practices have the resources to remain viable, protect access to care and participate in value-based payment programs.
  • CMS should provide a six-month transition period for providers to make adjustments, transition their practices, and maintain continuity of care for their patients.

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