HCS/455 Week 5: Health Care Policy Position Paper, sample paper

Same Visit, Same Doctor, Two Bills: A Position Paper for Extending Site-Neutral Medicare Payment to Office-Type Services in Hospital Outpatient Departments

[Student Name]

University of Phoenix

HCS/455: Health Care Policy: The Past and the Future

Week 5 Assignment

[Instructor Name]

[Date]

The patient described in the introduction is a composite written for a model paper.

A composite 68-year-old woman has seen the same cardiologist for eight years, in the same office building, for a checkup and an echocardiogram each spring. Last year, a hospital system bought the cardiology practice. This year, she saw the same doctor in the same room and had the same test, but she received two bills: one from the physician and one from the hospital, labeled a facility fee. Her share of Medicare's payment rose because Medicare now paid the hospital outpatient rate. Nothing about her care had changed except the name on the door, yet Medicare and the patient both paid more. This paper argues that Medicare should pay the same rate for routine office-type services regardless of whether a hospital owns the office.

The Position

Congress should extend site-neutral payment to office-type services, such as clinic visits, imaging and drug administration, delivered in all off-campus hospital outpatient departments, including those currently exempt, with targeted protections for rural and safety-net hospitals.

Background: Why Payments Differ

Medicare pays for outpatient services under two main systems. Services in physicians' offices are paid under the physician fee schedule, which includes an allowance for practice expenses such as rent and staff. Services in hospital outpatient departments are paid under the outpatient prospective payment system, which pays the hospital a facility payment in addition to a reduced physician payment. For many common services, the combined payment in a hospital outpatient department is substantially higher than in an office. Beneficiaries pay 20% coinsurance on the higher amount.

Congress has already accepted the principle partially. The Bipartisan Budget Act of 2015 required that services at off-campus hospital outpatient departments that began billing after November 2, 2015 be paid at rates tied to the physician fee schedule rather than the higher outpatient rate. Departments that were already billing before that date were exempted and still receive the higher rate for most services. The Centers for Medicare and Medicaid Services later applied a site-neutral rate to clinic visits at the exempted departments, a policy upheld by a federal appeals court after hospitals challenged it.

Congress's own advisers on Medicare payment have recommended aligning payment rates across ambulatory settings for services that are commonly and safely provided in physician offices (Medicare Payment Advisory Commission, 2023).

The Evidence: Payment Differences Drive Consolidation and Higher Prices

The payment gap gives hospitals a financial reason to buy physician practices and bill their services as hospital outpatient care. Over the past two decades, the share of physicians employed by hospitals has grown substantially. Capps et al. (2018) found that when hospitals acquired physician practices, prices for the acquired physicians' services rose by about 14%, with part of the increase attributable to facility fees and part to hospitals' greater bargaining power with private insurers. Post et al. (2018), reviewing the research on vertical integration between hospitals and physicians, found consistent evidence of higher prices and spending and limited evidence of improved quality.

In other words, the patient in the introduction is not an exception. The payment system rewards a change in ownership that raises costs without improving care.

The Opposing Case

Hospitals raise three serious objections. First, hospital outpatient departments face costs that physician offices do not: they must meet hospital licensing and accreditation standards, comply with emergency treatment obligations and maintain the capacity to handle complex patients. Second, facility payments help hospitals cover uncompensated care and services that lose money, such as emergency and trauma care, so cutting them could weaken services communities depend on. Third, rural and safety-net hospitals operate on thin margins and could be harmed disproportionately.

Response

These objections deserve a response, but they do not justify paying more for the same office visit. If hospitals bear higher costs for standby emergency capacity or uncompensated care, Medicare should pay for those costs directly and transparently, not by paying more for routine services that do not use them. An echocardiogram in an office building does not use the hospital's trauma bay. Paying for standby capacity through inflated rates for office-type services also rewards the hospitals that buy the most practices, not those that provide the most emergency or charity care.

The concern about rural and safety-net hospitals is the strongest, and the recommendation below addresses it directly.

Recommendations

First, Congress should apply site-neutral payment to office-type services, defined as services commonly provided in physician offices, at all off-campus hospital outpatient departments, including those exempted in 2015, phased in over three years.

Second, on-campus services, emergency department services and complex procedures that require hospital resources should keep outpatient rates.

Third, rural hospitals and hospitals with high shares of low-income patients should be exempted or phased in more slowly, and a portion of the savings should fund direct support for emergency standby capacity and uncompensated care in those hospitals.

Fourth, each off-campus department should bill under its own identifier so that Medicare and researchers can track where services are provided.

Fifth, beneficiaries should be protected from surprise facility fees through clear advance notice when a facility fee will apply.

Expected Effects

Site-neutral payment would lower Medicare spending and beneficiaries' coinsurance for affected services, reduce the financial incentive for acquisitions made mainly to capture facility fees and, over time, slow the price increases that follow acquisitions. The protections would limit harm to hospitals serving rural and low-income communities. Medicare's choice would also matter beyond Medicare: private insurers often pay facility fees in hospital-owned offices as well, and several states, including Connecticut, have already restricted facility fees for certain outpatient services. A federal standard would give states and private payers a clear reference point.

Conclusion

Medicare should pay for a service, not for the ownership of the building where it is delivered. The payment gap between hospital outpatient departments and physician offices raises costs for Medicare and patients and encourages consolidation that raises prices without improving quality. Extending site-neutral payment to office-type services, with direct support for the standby and safety-net functions hospitals legitimately provide, would align payment with value.

References

Bipartisan Budget Act of 2015, Pub. L. No. 114-74, § 603, 129 Stat. 584 (2015).

Capps, C., Dranove, D., & Ody, C. (2018). The effect of hospital acquisitions of physician practices on prices and spending. Journal of Health Economics, 59, 139-152. https://doi.org/10.1016/j.jhealeco.2018.04.001

Medicare Payment Advisory Commission. (2023). Report to the Congress: Medicare and the health care delivery system.

Post, B., Buchmueller, T., & Ryan, A. M. (2018). Vertical integration of hospitals and physicians: Economic theory and empirical evidence on spending and quality. Medical Care Research and Review, 75(4), 399-433. https://doi.org/10.1177/1077558717727834