AAPS Asks CMS to End Discriminatory Payments and Price Controls


September 24, 2018

Dear Administrator Verma,

We appreciate this opportunity to comment on the “Proposed Changes to Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs” for 2019 as proposed in CMS-1695-P.

The Association of American Physicians & Surgeons (“AAPS”) is a non-profit membership organization of physicians and surgeons who are mostly in small, independent practices.  Founded in 1943 (and celebrating our 75th year), AAPS defends and promotes the practice of private, ethical medicine.  AAPS has members in virtually every specialty and State, and AAPS speaks out frequently about issues concerning patients and medical practice.

More specifically we are writing to comment on the proposal—outlined in section X.B. of the rule—to take a small step toward reimbursement parity between services provided at outpatient departments affiliated with hospitals and the same care rendered at a non-hospital facilities, like independent physicians’ offices.

As CMS notes in the rule, “differences in payment rates have unnecessarily shifted services away from the physician’s office to the higher paying hospital outpatient department.” How much have services shifted? CMS gives a hint of the extent of the problem: “From 2012 to 2015, hospital-based E&M visits per beneficiary grew by 22 percent, compared with a 1-percent decline in physician office-based visits.”

The commentary inside the rule also reveals: “Medicare spent $1.0 billion more in 2009 and $1.6 billion more in 2015 than it would have if rates for E&M office visits in HOPDs were the same as freestanding office rates. Related beneficiary cost-sharing was $260 million and $400 million higher.” Further, hospital-employed physicians’ practice patterns for “certain services in cardiology, orthopedic, and gastroenterology services led to a 27 percent increase in Medicare costs. This translated to a 21 percent increase in out-of-pocket costs for patients,” reports the Physicians Advocacy Institute. http://www.physiciansadvocacyinstitute.org/Portals/0/assets/docs/PAI_PressRelease_110917.pdf

Although the move toward ending government-determined payment disparity is welcome, it ultimately will not fix the root problem—the absolute lack of market-driven prices in Medicare.

CMS, in addition to encouraging predatory behavior by hospitals, is also starving the more efficient physician-owned centers by not allowing them to charge a reasonable fee. Starving everybody is not a good answer. Medicare should set a site-neutral reimbursement rate and allow facilities to balance bill. Facilities should compete for business by posting their prices and Medicare reimbursement. Those who refuse to do so are likely to be avoided by price-sensitive patients. People are smart enough to figure out what it means when restaurants don’t put a price on the menu.

CMS must end harmful top-down price controls, but until they are gone, it should not use price fixing to discriminate against independent small practices in favor of large health systems. The heavy-handed controls not only pay certain facilities more than others, but compound the harm through the prohibition on balance-billing for Medicare services.

In the rule CMS admits that past policy failures have cascaded into the current untenable situation:

The OPPS was originally designed to manage Medicare spending growth…. To the contrary, the OPPS has been the fastest growing sector of Medicare payments out of all payment systems under Medicare Parts A and B. Furthermore, we are concerned that the rate of growth suggests that payment incentives, rather than patient acuity or medical necessity, may be affecting site-of-service decision-making.

PPS is meant to contain expenditures for unnecessary services, but the same incentive structure discourages necessary services. And the proposal acknowledges the problem in defining “necessary.” Inpatient PPS was predicted to lead to discharging patients “quicker and sicker,” and–possibly as a  consequence–there are punishments for readmissions. Are patients now being shunted prematurely to hospice? We hear reports of this, from physicians and families, but are not aware of any studies to track it.

The fact is, Medicare’s discriminatory payment policies have wrought severe damage to America’s base of independent physicians. “The national share of hospital-employed physicians increased from 30% to 48% from 2010 to 2016,” according to a new Health Affairs study. The NY Times reports: “Big hospital groups are also eroding primary care practices: They employed 43 percent of the nation’s primary care doctors in 2016, up from 23 percent in 2010.” And this shift has real world consequences to patients. The researcher examined the impact of vertical integration in 41 California counties, and estimated “the shift in ownership translated to a 12% increase in Affordable Care Act premiums, a 9% hike in specialist prices and 5% boost in primary care prices.” http://www.modernhealthcare.com/article/20180904/NEWS/180909986  and https://www.nytimes.com/2018/04/07/health/health-care-mergers-doctors.html

Medicare’s payment policies bleed into the commercial market as well, as contracts are frequently based on Medicare rates. And as health systems devour private practices, they gain negotiating leverage with commercial insurers, at the expense of the small private offices that remain independent.

In addition to the increased costs, quality also suffers when patients are steered away from physicians in independent practice. “Recent evidence suggests that small, physician-owned practices, [provide] a greater level of personalization and responsiveness to patient needs, …fewer preventable hospital admissions, and lower readmission rates than larger, independent- and hospital-owned practices.” (Ann Fam Med. 2016 Jan; 14(1): 5–7, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4709149/)

The change CMS proposes is a rather modest shift. The proposal outlined in the rule would “apply an amount equal to the site-specific PFS payment rate for nonexcepted items and services furnished by a nonexcepted off-campus PBD (the PFS payment rate) for the clinic visit service, as described by HCPCS code G0463, when provided at an off-campus PBD excepted from section 1833(t)(21) of the Act.”

While continuing to push for reforms that would truly eliminate flawed price controls and allow market-driven pricing, AAPS supports this small step toward ending the imposition of discriminatory pricing between independent physician offices and some off-campus hospital-owned facilities, often facilities that once were independent and became victims of a disparity-driven hospital takeover.

However, we also suggest CMS could impose payment parity more broadly. The volume control authority at section 1833(t)(2)(F) allows more substantive changes than are being proposed. CMS could, for instance, apply the PFS payment rate for G0463 to the corresponding outpatient care at all hospital facilities, not only “off-campus” facilities. Additional services, besides the E&M services described by G0463, could be shifted to a site-neutral payment rate.

Vast disparity exists between procedures and diagnostics billed as OPPS, PFS or ASC rates, for example:

“Medicare pays hospitals $1,745 for performing an outpatient cataract surgery while paying ASCs only $976 for performing the same surgery.”


“For the administration of chemotherapy drugs the payment to a hospital outpatient facility is nearly three times the rate paid to a community cancer clinic ($136 vs $390)”


“Cardiac imaging payments are more than triple when patients receive care at a hospital department instead of  a physician’s office – roughly $2,100 vs. $655, respectively.”  http://www.physiciansadvocacyinstitute.org/Portals/0/assets/docs/PD-EC-Letter2-1.pdf

MedPac has recommended 24 services for payment equalization across settings, so there is clearly additional slack remaining for CMS to pull in. https://goo.gl/ci3Zfw

The proposal notes many of the complexities that could affect pricing and availability, including patient demographics, severity of illness, provider shortages. But it falls short of acknowledging the inevitable arbitrariness in central price-fixing. Why a big difference for facilities less than 250 yards from the main entrance, vs 260 yards or a mile? Why excepted vs nonexcepted services? CMS could take a giant step toward rationalizing policy, eliminating misallocation of resources, and allowing supply and demand to equilibrate by setting a site-neutral reimbursement rate and letting voluntary decisions set prices through balance billing.

As we stated at the top, payment parity, while needed and welcome, is not going to ultimately solve the problem without also allowing markets to determine prices and empowering patients to become active participants in an environment where facilities are competing on price and quality. As Secretary Azar recently stated, “value is best determined by markets and consumers, not arbitrary rules and central planners.”

Imposing a top-down structure of third-party payment over approximately two-thirds of U.S. medical care has had a devastating impact rife with incentives that, as HHS itself admits, reward increased prices and gaming the system in ways that harm patients.

On the other hand, where free market forces are at work, the cost of high quality care drops.

Earlier this month the Wall Street Journal reported on innovation cutting prices in half for patients seeking in vitro fertilization not covered by insurance. https://www.wsj.com/articles/the-fertility-clinic-that-cut-ivf-prices-in-half-1536589667. Lasik surgery is another well known example of free markets providing an abundance of lower cost, high quality care. http://fortune.com/2013/05/23/what-tummy-tucks-can-teach-us-about-health-care-reform/

Fundamental change that will roll back the half-century of Medicare’s unconstitutional (and soon insolvent) interference in American medicine is urgent. Patients are rapidly losing access to independent physicians, the physicians who are the backbone of American medicine. Patients and physicians have all but lost meaningful freedom, the freedom which made American medicine great.

For real solutions to truly empower patients’ to access low-cost, high-quality medical care, while averting national bankruptcy, CMS must look to the remnant, led by pioneers like the Surgery Center of Oklahoma and Atlas MD Direct Primary Care. They are sparking a free-market revolution by directly collaborating with patients, outside the confines of mega-health system and health plan control.

Thank you again for the opportunity to share these essential ideas for consideration by CMS.

PDF of comments: https://goo.gl/VXU6oT