Medicare Panel Urges Cuts to Hospital Payments for Services Doctors Offer for Less

A federal advisory panel said Friday that Congress should move immediately to cut payments to hospitals for many services that can be provided at much lower cost in doctors’ offices.

The Medicare Payment Advisory Commission said the current payment disparities had created incentives for hospitals to buy physician practices, driving up costs for the Medicare program and for beneficiaries. Hospital buyouts of doctors, turning independent practitioners into hospital employees, have also led to higher spending by private insurers and higher co-payments for their policyholders, the commission said.

Congress often adopts ideas suggested by the commission, and hospital executives fear that could happen again as lawmakers search for ways to squeeze savings out of Medicare.

Medicare uses different fee schedules and formulas to pay for services provided in doctors’ offices and in hospital clinics.

“In many cases, a physician’s practice that is purchased by a hospital stays in the same location and treats the same patients,” but “Medicare and beneficiaries pay more for the same services,” the 17-member commission said in a report to Congress.

For example, it said, Medicare pays $58 for a 15-minute visit to a doctor’s office and 70 percent more — $98.70 — for the same consultation in the outpatient department of a hospital. The patient also pays more: $24.68, rather than $14.50.

Likewise, the commission said, when a Medicare beneficiary receives a certain type of echocardiogram in a doctor’s office, the government and the patient together pay a total of $188. They pay more than twice as much — $452 — for the same test in the outpatient department of a hospital. (The test is used to evaluate the functioning of the heart.) The commission urged Congress to “equalize payment rates” or at least reduce the disparities, for doctor’s office visits and hospital clinic visits in which similar patients receive the same or similar services.

Variations in payment “urgently need to be addressed because many ambulatory services have been migrating from physicians’ offices to the usually higher-paid outpatient department setting, as hospital employment of physicians has increased,” the panel said.

Under the changes outlined by the commission, hospital clinics could lose 5 percent of their Medicare revenue. But the Medicare program and beneficiaries could save $1.8 billion a year, the panel said.

Hospitals strenuously oppose the cuts, saying they have many costs that doctors practicing on their own do not have.

“Medicare already underpays hospitals for caring for patients in an outpatient setting, and the commission’s proposals would worsen that,” said Joanna Kim, a vice president of the American Hospital Association. “Hospitals might be forced to curtail services, threatening access for the poor and patients with multiple chronic conditions.”

Full-service hospitals, unlike doctors’ offices, have emergency rooms and “standby capacity” to care for victims of accidents, natural disasters, epidemics and terrorist actions. And hospitals are subject to more stringent regulation.

Jonathan D. Blum, deputy administrator of the Centers for Medicare and Medicaid Services, said the Obama administration had “no official position” on the commission’s proposal. But at a Congressional hearing on Friday, Mr. Blum said he supported the general goal of “site-neutral payments,” meaning that Medicare would pay about the same amount for a service, regardless of where it was provided.

The new health care law encourages doctors and hospitals to join forces, coordinate care and hold down costs. But the Medicare commission cited another reason for collaboration, saying, “Hospitals often choose to employ physicians to ensure a stable stream of tests, admissions and referrals to specialists.”

From 2010 to 2011, the commission said, the number of echocardiograms provided to Medicare beneficiaries in doctors’ offices declined by 6 percent, but the number in hospital outpatient clinics increased by nearly 18 percent.

The shift reflects “financial incentives in Medicare’s payment systems” and coincides with “rapid growth in hospitals’ employment of cardiologists,” the panel said, noting that the share of cardiologists who are employed by hospitals tripled, to 35 percent in 2012, from 11 percent in 2007.

In a separate section of its report, the panel explored broader changes in Medicare, under which each beneficiary would receive a fixed amount of federal money to buy insurance from a private health plan or to help pay for coverage under the traditional Medicare program.

Republicans have championed such proposals as a way to increase choices for beneficiaries and save money for Medicare. President Obama and other Democrats have denounced the idea, saying it would turn Medicare into a voucher program and expose beneficiaries to higher costs.

The nonpartisan Medicare commission said the proposals were not necessarily good or bad but were “worth investigating.”

The effects on beneficiaries and the potential savings, it said, depend on the answers to crucial questions: whether all plans would offer the same benefits, how the federal contribution would be set, how it would increase over time and whether the traditional Medicare program would compete directly with plans offered by private insurers.

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