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WASHINGTON -- Medicare should do a better job of equalizing payment for outpatient care across all settings -- physician offices, hospital outpatient departments, and ambulatory surgical centers -- but there still should be some allowances for different costs between sites, according to members of the Medicare Payment Advisory Commission (MedPAC).

"I think we do need to recognize the differences in complexity," commission member Jonathan Perlin, MD, PhD, chief medical officer of HCA Healthcare, a hospital system headquartered in Nashville, Tennessee, said Tuesday at the MedPAC November meeting. "If you're a hospital, you are required to prepare for EMTALA [the Emergency Medical Treatment and Labor Act]. If you're a trauma center Level 1 or Level 2, you're going to have anesthesiology, hand surgery, and neurosurgery on call 24/7/365" -- a cost that a freestanding doctor's office wouldn't have to incur.

Medicare often pays differently for the same service, depending on the type of setting in which it is provided -- even if that service can be safely provided in more than one setting, Daniel Zabinski, PhD, a senior analyst at MedPAC, explained. He noted that because hospital outpatient departments (HOPDs) often get paid at higher rates for the same service compared to physician offices, hospitals will buy up physician practices and then make money by receiving those higher rates.

Possibly as a result, the share of office visits, cardiac imaging, echocardiology, and chemotherapy administration performed in HOPDs has greatly increased, while the proportion performed in physician offices has decreased, Zabinski said. For example, 13.1% of physician office visits were in HOPDs in 2019, compared with 9.6% in 2012; for chemotherapy administration, 50.9% of Medicare visits for that service were in HOPDs in 2019, compared with 35.2% in 2012. A law passed by Congress in 2015 attempted to standardize payment rates across all settings, but it has had only a limited effect.

How much more money do HOPDs get compared with physician offices? In one example -- a Level 2 nerve injection -- if it is performed in a freestanding physician office, the doctor will be paid $256.28 under Medicare's Physician Fee Schedule (PFS), but if it is performed in an HOPD, which is paid under the Outpatient Prospective Payment System (OPPS), Medicare will pay $701.16, Zabinski said. Of course, there are reasons why the payments may not be equal, he added. For instance, the OPPS and the payment system for ambulatory surgical centers both use different payment units than the PFS, and the payment rates for the first two sites include more ancillary items.

But what if an attempt were made to align the payments better? MedPAC staff members decided to try; they picked out 57 "ambulatory payment classifications" (APCs) -- service bundles -- for services provided by either an HOPD or an ambulatory surgical center, and aligned them with payments made for the same service under the PFS. The result? Payments to HOPDs dropped by $6.4 billion, and payments to ambulatory surgical centers decreased by $270 million. It also improved the situation for patients, because their cost-sharing is based on how much Medicare pays for a service; patients would have paid $1.67 billion less in cost-sharing for those services.

One problem with this idea, Zabinski noted, is that it would decrease payments to hospitals that serve vulnerable populations; such hospitals are already struggling with low -- or sometimes negative -- profit margins. To address this issue, the staff suggested limiting overall payment decreases to 3.3% for the more than one-fourth of hospitals who serve more than the median level of poor or underserved patients.

Commission members liked the idea of aligning the payments. "I strongly support the need to align across ambulatory settings," said commission member Betty Rampur, PhD, RN, professor of nursing at the University of Rhode Island in Providence. "I have certainly found the empirical evidence that when hospitals acquire physician practices and there is market consolidation, prices go up -- I have found that to be very compelling." She added that "it's entirely baffling to patients when they receive a service at one time in one place, and they receive the exact same service a very short time later and there's a dramatic difference in the cost. It's just not rational and I think we need to address it."

Fellow commissioner Lawrence Casalino, MD, PhD, chief of health policy and economics at the Weill Cornell School of Medicine in New York City, seemed to agree. "No one is putting a gun to hospitals' heads and saying, 'You have to buy these practices,'" Casalino added. "Hospitals make the decision to buy practices. That doesn't mean that society has to subsidize their higher costs."

A question to consider if this idea is implemented is what to do with the savings that would be generated, said commissioner Lynn Barr, MPH, founder of Caravan Health, a firm in Kansas City, Missouri that helps facilities navigate value-based payment models. "One of the biggest concerns I continue to have is that rural beneficiaries pay huge cost-sharing -- it's about 50% average cost-sharing for outpatient [care] in rural hospitals," she said. "So I would say that if you have a savings from this, you should apply it to rural beneficiary cost-sharing, so they pay the same 20% cost-sharing that every other beneficiary does in the country."

But Casalino disagreed. "I think it may be a mistake to try to say what should be done with the savings," he said. "That really kind of gets into how hospitals should be paid ... I don't think it's our job to talk about how hospitals should be paid." However, he continued, "dealing with rural hospitals is a tricky question. They could just be exempted; that wouldn't necessarily be a bad thing. There's some reasons to think that physician hospital consolidation in rural areas is not bad. For one thing, it's a way to get some physicians in rural areas and keep them there."

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