Hospitals oppose cuts to outpatient surgery rates

Pressure is mounting in Washington to cut Medicare's rates for hospital outpatient surgeries, even though government prices already fail to cover hospitals' costs.

In 2012, the average profit margin for the service line was negative 11%, according to a report last month from the Medicare Payment Advisory Commission, or MedPAC. Yet both MedPAC and HHS' inspector general's office are recommending cuts that would drive the Medicare margins lower.

“Medicare already pays substantially less than what it costs to provide outpatient services in hospitals, and this would make that much worse,” said Joanna Hiatt Kim, vice president for payment policy at the American Hospital Association.

On Thursday, Medicare's fiscal watchdog office recommended that the CMS get Congressional approval to pay hospital outpatient departments less money (PDF) for low-risk procedures.

Specifically, if hospital outpatient surgery departments got the same rates as cheaper, limited-service ambulatory surgery centers for the same low-risk services, Medicare could save as much as $15 billion over six years while still paying for the same services to be delivered in the same locations. A low-end estimate for the savings was $7 billion over the same time period, based on a more limited definition of which patients were at risk for complications during procedures.

Those figures are equivalent to savings between $1 billion to $2.5 billion per year.

The office estimated that Medicare patients would also pay $2 billion to $4 billion less in copayments during that time, because the fees are often equivalent to 20% of the overall bill.

Those recommendations come one month after MedPAC recommended Congress tell the CMS to implement a suite of payment reforms that included proposed cuts to hospital outpatient rates of 2.7%.

Rather than look at patients' individual risk for complications as the OIG did, MedPAC focused on 66 types of services that it said in general didn't require the costly emergency-standby services provided at acute-care hospitals. The payment adjustments would lower overall Medicare payments by $1.1 billion a year, including the decreases in beneficiary copayments.

MedPAC made the same recommendation in 2013 that Congress should order the CMS to equalize payment rates for outpatient services because paying hospitals more money to perform the same service may drive waste.

“This payment difference creates a financial incentive for hospitals to purchase freestanding physicians' offices and convert them to (outpatient departments) without changing their location or patient mix,” MedPAC commissioners wrote last month (PDF).

The AHA's Hiatt Kim said calls to cut Medicare's outpatient rates were perplexing and potentially dangerous, because hospitals already lose so much money treating Medicare outpatients.

“Further payment reductions really threaten their ability to provide safety net services that are otherwise not available in the community,” she said, noting 24-hour emergency departments and local disaster-readiness services as two examples.

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