Medicare May End Price Discrimination against Independent Physicians


If a Medicare patient gets a service performed in a hospital-owned facility, Medicare may pay far more than if the same service was done in a physician-owned clinic, writes Lawrence Huntoon, M.D., Ph.D., in the fall issue of the Journal of American Physicians and Surgeons. This unfair advantage to hospitals has caused many physician practices to close or be bought by hospitals.

For example, Medicare paid $5,148 for a cardiac imaging episode of care in a hospital-owned clinic as opposed to $2,862 when provided in a private physician office. Medicare paid $525 for an Evaluation and Management episode of care provided in a hospital-owned clinic, and $406 when provided in a private physician office.

The site-neutral payment system to be phased in over 2 years will begin to eliminate, for clinic visits at off-campus provider-based departments, the “facility fee” paid only to hospitals. A Fact Sheet provided by the Center for Medicare and Medicaid Services (CMS) stated: “This proposed change would result in lower copayments for beneficiaries and savings for the Medicare program and taxpayers estimated to be a total of $810 million for 2020.” 

The current perverse incentives have fueled an increase, ranging from 91% to 303%, in hospital-owned physician practices. Some 31% of physician practices are now owned by hospitals. Once acquired by a hospital, the practice style often changes. “Much like a production line in a factory, the employed physician’s compensation and bonuses are tied to production (how many Resource-Based Relative Value Units the physician provides),” Dr. Huntoon writes.

It is estimated that increased integration of the hospital-physician marketplace resulted in more than $3.1 billion in increased costs from 2012-2015—Medicare paid $2.7 billion more for these services and Medicare beneficiaries faced $411 million (27%) more in financial responsibility for these services.

The American Hospital Association (AHA) and other hospital organizations are suing to try to preserve the Obama-era grandfather exemption for existing hospital-owned outpatient clinics. They complain of “executive overreach.”

The increased state of awareness of this discriminatory program increases the chance that it will ultimately be eliminated.            

The Journal of American Physicians and Surgeons is published by the Association of American Physicians and Surgeons (AAPS), a national organization representing physicians in all specialties since 1943.