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It Is Time For Site-Neutral Payments In Our Healthcare System

Late last year, the House of Representatives passed a small step toward site-neutral payment policies in Medicare. But the Senate did not pass the bill due to opposition from the hospital industry. Since then, healthcare advocate groups have made a full court press to pass something in 2024. The hospital lobby is strong and has resisted these types of reforms for years. But advocates, health plans, and other parties have made the case that the reform is critical to lowering overall costs in the system as well as rising out-of-pocket costs for everyday Americans. Of course they are right. I have it as a key reform within one of my healthcare reform tenets – price reform.

What are site-neutral payment policies?

Quite simply, it means paying the same amount for the same service regardless of the place of service or location. Traditionally, outpatient hospital settings have gotten paid far more for the same service that could be provided in other ambulatory settings. Hospitals are simply paid higher rates or add so-called “facility fees” to the charges for the service. This occurs with simple labs and x-rays, complex radiology, and even same-day surgeries.

What’s more, as hospitals have taken over or created ambulatory surgery and other settings not directly attached to their hospital campus, they have added the facility fees to the charges too. Most patients do not know whether these external facilities are owned or associated with hospitals and then receive enormous bills for simple procedures. One trend is to even apply such fees to zero-cost-sharing preventive services under the Affordable Care Act (ACA). Someone goes in thinking they are receiving a free colonoscopy or mammogram and they receive a bill for the facility fee.

Further, oftentimes patients really do not have a choice where to obtain a service. Unless you are a really savvy consumer, doctors tend to dictate where you should go for a service. This is both in terms of telling a patient where to go as well as because hospital-owned doctors limit the facilities they refer to or perform procedures in. The problem here is that most doctors are not acting in the best interests of their patients anymore – clinically or financially. More than 50% of doctors today are owned by hospitals or health systems. Another rough 20% are owned by private equity firms, which also have built-in conflicts of interest. (The hospital lobby contorts data to come up with their own figures, but these are the real ones.)

Studies show that when a doctor is purchased by a hospital or health system, practice patterns change. As opposed to performing tests, procedures, or surgeries in the office or at a free-standing facility, the doctor recommends treatment at outpatient hospital, a hospital-affiliated ambulatory center, or hospital-affiliated lab or imaging center. The patient pays a facility fee or much higher rates based on provider contracts with health plans. Even if a doctor were to perform in his office, a facility fee and higher rates apply as the doctor is owned by the hospital or health system. In essence, the lack of site-neutral payments incentivizes hospitals and health systems to keep acquiring physicians so as to keep diverting services to higher cost settings.

Further, some of these physician acquisitions include facilities of the physician or physician group. Hospitals rebrand the centers and make them an off-campus hospital outpatient department. They use the main hospital NPI to bill and thus obtain higher prices or facility fees.

It stands to reason that patients and health plans should be billed the same amount for a given service regardless of where it is furnished – outpatient hospital, ambulatory center owned by a hospital, a free-standing, unaffiliated ambulatory center, physician office, or at home (given the advancement of technology). It is fair and equitable and would save the system and patients tens of billions of dollars.

How are the system and patients impacted?

The system is impacted because tens of billions are paid in excess charges to the hospital or health system. As noted, prices can be dramatically different.

The patient pays more in two ways. He or she in general may pay more because the cost-sharing is based on the higher fee/plan approved payment. More important, to save money and keep premiums lower, health plans have to make hospital outpatient or hospital-aligned services subject to higher cost-sharing as well. In this case the hospital-aligned services may be subject to a deductible as well as co-insurance (a percentage of the fee) vs. a fixed co-pay with no deductible.

History of site-neutral policies

Site-neutral payment policies remain controversial, but the federal government has gone down this road in Medicare slowly.

Hospitals can have on-campus outpatient departments (attached to the hospital campus) as well as off-campus outpatient hospital departments.

In 2015, the Bipartisan Budget Act (BBA) moved to Medicare site-neutral payments for any new, off-campus hospital outpatient departments. The BBA limited new hospital outpatient payments to comparable ones at other locations.

In 2016, Congress passed some exceptions to the new rule for certain hospitals (e.g., hospital building plans inflight).

In 2019, CMS expanded site-neutral payments to include clinic visits occurring at all off-campus hospital outpatient departments.

In December 2023, the House passed the first proposed site-neutral reforms in some time. It proposed that Medicare Part B payment for drug administration at off-campus hospital outpatient departments match other settings. The bill required off-campus hospital departments to obtain and bill under a separate National Provider ID (NPI). The bill did not pass the Senate but had a strong bipartisan consensus in the House.

What are the current costs without site-neutral payments and what are the potential Medicare savings?

One important note is that on-campus hospital outpatient departments account for 87 percent of Medicare’s spending on hospital outpatient services in 2022. On-campus hospital departments account for two-thirds of clinic visits at hospital outpatient. Thus, the bulk of savings from site-neutrality would come from applying it to on-campus sites.

Ambulatory Surgery Centers (ASC), free-standing diagnostics and labs, and physician offices are well below what on-campus and off-campus hospital outpatient departments receive. Various studies analyze the magnitude of the difference between what hospitals receive for services done at lower-cost places of service.

  • Medicare rates for Ambulatory Surgery Centers (ASCs) are 50% of hospital outpatient.
  • Payments for initial preventive exams were 51% higher in 2023 when provided in a hospital outpatient department than in a freestanding physician office.
  • One study found Medicare Part B pays hospitals almost double what they would pay a freestanding physician’s office for the same service, although reimbursement rates can vary. Another found that average reimbursement for drug administration services was 129 to 211 percent higher in hospital outpatient departments than in freestanding physician offices in 2021.
  • For surgical specialties, Medicare reimbursement was 224% higher for hospitals.
  • Some studies suggest that certain services are reimbursed for hospital outpatient five times higher than other settings.

So how much Medicare savings could be obtained? Various proposals would save between $5 billion to $145 billion over 10 years:

  • The December House provision on off-campus hospital outpatient department drug administration would have saved Medicare $3.7 billion over 10 years. Others say it could be as much as $5 billion over 10 years,
  • The new off-campus hospital outpatient department equalization noted above will save $9 billion over 10 years.
  • Equalizing payments for certain hospital outpatient payments (on- and off-campus) for drug administration would save Medicare Part B $6.0 billion in 2021 and beneficiary cost sharing by $1.5 billion. 
  • All services most commonly provided in less expensive settings as identified by MedPAC are estimated to save $18 billion over 10 years if applied to off-campus hospital outpatient departments.
  • Doing all of MedPAC’s identified services would save $28 billion over 10 years if applied to off-campus hospital outpatient departments.
  • Equalizing all services payments in off-campus hospital outpatient departments would save $39 billion over 10 years.
  • Equalizing all services payments for on-campus hospital outpatient departments would save $102 billion over ten years.
  • MedPAC estimates on- and off-campus equalization at $145 billion over ten years for certain services ($18 billion off-campus and $127 billion on-campus).

What is the status of the commercial market and where does it stand on site-neutral payments?

Private insurers typically aim to have site-neutral payment policies. But the reality is that unless and until Medicare migrates there, commercial efforts to move to site-neutral polices will mean poor results. This is because many commercial rates are based on Medicare rates and hospitals fight for as much reimbursement as possible in the commercial world.

A Blue Cross and Blue Shield Association study finds the following:

  • Average prices paid for a large commercial population were 31% higher for clinic visits in 2022 when provided in a hospital outpatient department setting compared with a freestanding physician office.
  • Average prices paid for a large commercial population were 238% higher for chest x-rays in 2022 when provided in a hospital outpatient department setting compared with a freestanding physician office.
  • Average prices paid for a large commercial population were 563% higher for prostate biopsies in 2022 when provided in a hospital outpatient department setting compared with a freestanding physician office.

Bringing it together

The Blue Cross and Blue Shield Association says migrating completely to site-neutral payments would save $471 billion for the government (Medicare), private premiums (because they are based on Medicare rates), and Medicare patients (in cost-sharing) over 10 years (2024 to 2033).

University of Minnesota economist Steve Parente estimates that about $847 billion could be saved by employer health plans from 2024 to 2033 if hospital-owned medical practices’ routine office visits, labs, and more were paid at site-neutral rates.

What do hospitals say?

Hospitals of course cry Armageddon when site-neutral payments are mentioned. Hospitals argue the following to stop site-neutral payments in favor of higher payments:

  • They are subject to expansive regulations that drive costs.
  • Most are required to have expensive 24x7x365 emergency departments and related services.
  • The above means huge capital and financial overhead commitments and risks.
  • Hospitals say they serve individuals with greater healthcare risks, complications, and comorbidities. Thus, services cost far more to provide. Other studies show that such differences are small.
  • Hospitals receive just 82 cents of every dollar in costs of caring for Medicare patients. In 2022, Medicare underpayments were about $100 billion.
  • Site-neutral payments would mean cost-cutting, leading to decreased access to care and poorer quality. Thus, they argue that it will simply mean greater under-reimbursement.

As a former hospital board member of two hospitals, I am not unsympathetic to the unique position of hospitals in the healthcare world as well as the many challenges and pressures they have. But it is hard to get past a few fundamental points:

  • Many hospitals, especially with consolidation, have poor and diminished quality. Quality and safety at other places of service are as good or better and less risky than at hospitals.
  • The over-charging by hospitals is hard to justify and drives costs in both the Medicare and commercial world.
  • The current payment structure dissuades hospitals from reforming and becoming more efficient.
  • The current system also is anti-price transparency.
  • Excessive charges at off-campus hospital departments are especially hard to justify, especially because this is a new phenomenon. It amounts to an abuse of billing.
  • Site-neutral payments could be structured to protect critical access and rural hospitals. Other government payment schemes could be created to recognize unique hospital contributions.
  • The hospitals’ charge that Medicare is a major “under-reimburser” is speculative at best. Hospitals have a hard time truly understanding their cost.  They engage in all sorts of financial gymnastics to arrive at the under-payment figure. They are also based on bloated costs and investments.
  • Hospitals also do not seem to truly care for everyday Americans.  Many of them charge these excessive fees and then sue to garner wages and more when Americans cannot pay the exorbitant freight. Site-neutral payments give relief to patients that hospitals are unwilling to give.

Sources and additional reading:

#siteneutral #medicare #commercial #medicareadvantage #providers #healthplans #hospitals #payments

— Marc S. Ryan

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