Hospital-Physician Consolidation Requires Medicare Payment Reform Says the Government

In mid-December of last year the Government Accountability Office (GAO) requested that Congress order Health & Human Services to equalize Medicare payments for the same services, whether provided in a physician office or in a hospital outpatient department (HOPD).

The report focuses on the ever-increasing consolidation of hospitals and physicians.  Typically, when a hospital acquires a physician practice, the physician office becomes an HOPD.  That result has a number of beneficial effects.  For example, it helps integrate physician and hospital care and the maintenance of a single medical record for each patient.

But it costs Medicare a lot of money.  Why?  Because when a patient is treated in a HOPD—even for a routine physical exam—Medicare pays two amounts: a physician fee and a hospital fee.  The GAO report says, for example, that a typical exam costs $51 more in a HOPD (i.e., after consolidation) than in the same physician’s office before consolidation.

According to the report, CMS claims to lack the authority to equalize payments on its own.  That’s why the report requests that Congress take action.

The situation may be more complex than the report suggests.  There is undeniable appeal to the argument that an exam by a physician should cost the same the day before consolidation as the day after consolidation.

On the other hand, there’s a reason why Medicare pays hospitals a hospital fee: hospitals are hugely expensive to operate, and they provide many services without compensation.  Also, in the consolidation that is occurring so rapidly, hospitals made their plans (including acquisition cost calculations) based on the current payment system.  In addition, conversion of a physician office to a HOPD is not cost-free; it can be s substantial investment.


Have questions? I’m here to help.