By David Eagle
Imagine ordering your favorite entree at the neighborhood restaurant you’ve gone to for years. It’s the same dish, off the same menu, delivered by the same server. But suddenly, it costs 800% more – because the place just got new owners.
Few diners would accept such naked price-gouging.
Unfortunately, what’s unthinkable in the restaurant industry is standard fare in health care. Federal law and regulations allow hospitals to charge Medicare much more than independent physicians charge Medicare for the exact same procedures and health care services.
This structural inequity costs taxpayers and patients billions of dollars each year – and it will only get worse if Congress doesn’t act.
Hospitals have spent much of the last decade buying up independent physician practices. Between 2019 and 2024, they acquired some 7,600 physician practices nationwide, allowing them to reclassify those practices as hospital outpatient departments, according to the Physicians Advocacy Institute.
For hospitals, acquiring physician practices is a smart financial move. On the flip side, such hospital-driven consolidation is a raw deal for patients and taxpayers.
Routine services such as echocardiograms and colonoscopies are much more expensive when performed in a hospital rather than in a physician’s office or an ambulatory surgery center.
A peer-reviewed study that I co-authored this year in the Journal of Market Access and Health Policy proves as much – and shows just how costly those hospital referrals can be. We found that Medicare beneficiaries treated by hospital-affiliated physicians had just a 37% chance of receiving care in the lowest-cost setting.
The cost implications are massive. Consider a cystoscopy, a procedure used to diagnose and treat problems in a person’s urinary tract. In a hospital setting, Medicare pays $731 for the procedure. In a doctor’s office, Medicare pays just $239.
For some procedures, total Medicare reimbursement was eight times higher in a hospital outpatient department than in an ambulatory surgery center or doctor’s office.
This disparity imposes a hefty burden on federal taxpayers who bear the burden of paying for Medicare, and it also drives up premiums and cost-sharing for Medicare beneficiaries themselves.
The high payments give hospitals more revenue, which they are using to buy up additional physician practices and consolidate their markets even more, exacerbating the problem.
Congress and regulators have previously taken small steps to make Medicare payments more equal across different sites of care and to eliminate some of the perverse incentives that encourage hospitals to acquire independent physician practices.
For example, the Bipartisan Budget Act of 2015 directed the Centers for Medicare and Medicaid Services to stop using the higher hospital payment system for services furnished in physician practices that were acquired by hospitals and became part of the hospitals’ off-campus provider departments after the law’s effective date. Unfortunately, the rule doesn’t apply to any other services, such as diagnostic tests and procedures.
What Congress should do now is to embrace reforms that would require Medicare to pay the same price not just for clinic visits but also for services – regardless of where they’re performed.
Enacting payment reform would yield significant savings for Medicare – to the tune of more than $200 billion over 10 years, according to a 2023 study.
If Congress demands that Medicare standardize reimbursements for health care services and procedures – regardless of where or from whom patients receive them – private health insurance companies would follow suit.
Restaurant-goers wouldn’t accept it if a neighborhood cafe started charging higher prices for the same dishes under new ownership. Likewise, when hospitals buy up medical practices, patients and taxpayers shouldn’t have to pay more for the same diagnostic tests, procedures and other healthcare services either.
David Eagle, M.D., is a board-certified hematologist-oncologist and president of the American Independent Medical Practice Association.