CMS is proposing a controversial change to Medicare reimbursements beginning in 2019, known as the site-neutral payment policy. Under the policy, Medicare would reimburse outpatient services at the same rate as inpatient services. Currently, providers are reimbursed at a higher rate for services performed either within the hospital setting or at an outpatient setting that is owned by a hospital. The theory, they say, is that hospitals have greater overhead requirements (larger infrastructure, operating an emergency department, etc) and thus require the higher payments in order to stay afloat. Hospital profit margins are already thin and many hospitals operate at a net loss in a given year.
From a value perspective, the current rule does not appear to hold merit. Why would the same service be paid differently depending on whether it was performed at a hospital versus an outpatient clinic? Even worse, why would the pay rate be different if it was performed at a privately owned clinic versus a hospital owned clinic? If anything, giving hospital systems higher reimbursements in order to “cover their overhead” is only exacerbating the problem of inefficient medicine—services are incentivized to be performed in the most costly settings.
Hospitals, of course, are lobbying against this change. Many health systems stand to lose millions of dollars if the proposal is passed via decreased revenue. CMS says this proposal could save Medicare $610 million and patients about $150 million via lower co-payments. It is unclear whether some of these savings will be shared to privately-held outpatient centers as higher reimbursements. Nevertheless, it will be a step towards making the playing field more even between large hospital systems and physician groups – with the former currently able to secure higher payments and thus attract physicians through higher salaries.
The change in reimbursements will likely also slow the rate of acquisitions of physician practices by larger health systems. Under the current model, if a hospital purchased a private physician practice, it could immediately increase the reimbursements from this practice because it was now technically hospital-owned—even if the the practice remained in its previous outpatient setting. This was a component of the massive trend of hospitals buying out physician practices for an easy profit, despite adding no value to the system, but instead only increasing the cost of American healthcare. In 2016, CMS passed a proposal that attempted to reduce this cost inefficiency by paying less for services performed at hospital off-campus facilities versus hospital-based outpatient departments. However, the cost of services performed at hospital systems still remains higher than facilities that are not hospital-owned.
Site neutral payments are a necessary step in the move toward value-based care. With hospital lobbying against the proposal, it is not likely to be an easy proposal to pass. Many hospitals will likely be hurt by further reducing their margins. However, the shift to incentivize healthcare in the most cost-effective settings is a virtual requirement to reducing the overall cost of care.
Kacik A. Proposed site-neutral payment policy sets the stage for battle royale between CMS, hospitals. Modern Healthcare. July 26, 2018. Accessed September 2, 2018. http://www.modernhealthcare.com/article/20180726/TRANSFORMATION04/180729927/proposed-site-neutral-payment-policy-sets-the-stage-for-battle
CMS empowers patients and ensures site-neutral payment in proposed rule. The Centers for Medicare & Medicaid Services. July 25, 2018. Accessed September 2, 2018.
https://www.cms.gov/newsroom/press-releases/cms-empowers-patients-and-ensures-site-neutral-payment-proposed-rule
Jason Paul Singh is a student at The University of Arizona College of Medicine – Phoenix, class of 2020. He graduated summa cum laude from the University of Michigan – Ann Arbor with a BS in economics. His academic interests include alternative healthcare models and methods to improve efficiency in medicine. In his spare time, Jason enjoys traveling, reading and running. Please feel free to contact him at jpsingh[at]email.arizona.edu with any questions or comments.