Medicare beneficiaries are struggling with higher cost-sharing stemming from health systems snapping up physician practices and shifting many services to their outpatient departments, according to new federal research.
The CMS' payment policies have put the pressure on hospitals to buy physician practices to take advantage of better reimbursement rates for their sites of care, the Medicare Payment Advisory Commission's staff said at a meeting on Thursday. The share of physicians employed by hospitals increased from 26% in 2012 to 44% in 2018.
But the consolidation has had another effect. Medicare enrollees pay more cost-sharing since their medical bills are higher due to the shift in care settings.
Hospital-physician integration also increases prices for commercial insurers—and cost-sharing for people with private insurance—because it increases the market share of hospitals and the bargaining power of physician practices.
"It's not just vertical integration ... that leads to higher prices," said Dr. Jaewon Ryu, president and CEO of Geisinger. "It's vertical integration combined with (hospital outpatient) billing ... that leads to higher prices."
Site-neutral payments, which pay doctors the same amount for a medical service no matter where it's delivered, could lessen the incentives for providers to merge if the deal isn't going to improve quality or efficiency. Under a site-neutral payment model, Medicare would incentivize providers to deliver care at the least expensive location instead of profiting off the reimbursement differences.
"The one takeaway that I have is that we have to change the ways hospitals are paid," said Brian DeBusk, CEO of DeRoyal Industries. "I don't see another solution."
Hospitals have argued that vertical integration can improve quality and cut healthcare spending by increasing care coordination and reducing unnecessary care. But the research shows that hospital-physician integration doesn't significantly enhance the quality of healthcare, according to MedPAC's staff.
That's probably because most mergers result in a change of ownership, but no meaningful differences in clinical integration, said Dr. Lawrence Casalino, a public health professor and chief of the Department of Healthcare Policy and Research's division of health policy and economics at Weill Cornell Medical College.
Mergers between physician practices, or horizontal integration, have no significant impact on cost-sharing for beneficiaries' costs, according to MedPAC's research. But several MedPAC committee members asked to see more research on that subject, citing concerns that the analysis didn't consider indirect effects.
They were especially concerned that higher commercial payment rates could make Medicare rates look bad by comparison. That might lead hospitals to demand higher Medicare reimbursements over time or cut back on the share of Medicare patients that they serve, which could hurt access for Medicare beneficiaries.
The commissioners also asked the MedPAC staff to look into how federal policy might impact healthcare provider consolidation, which wasn't a focus of its latest research.
The MedPAC commission will discuss the effect of the 340B program on provider consolidation at their January meeting.