Congress and the President actually solved a real problem in American health care this week. The recent two year budget bill has a $9 billion dollar savings from Medicare that is being driven by how Medicare pays charges at doctors’ offices that were bought out by hospital chains. The National Journal has more:
will change the rate at which Medicare reimburses doctors’ offices that have been bought by hospitals. Previously, services at these offices would to be reimbursed at the rates paid to hospitals. Currently, hospitals are reimbursed at higher rates than physician’s offices because, the argument goes, of the additional expenses, such as being open 24 hours a day and maintaining standby capacity.
But under the new deal, these hospital-owned doctors’ offices will be reimbursed at the same rate as other doctors’ offices for their services.
That is a big deal although the way the deal is structured, it grandfathers current hospital owned provider practices under the higher billing scheme. Location agnostic billing only applies to offices that are bought out in the future. This is a massive asset enhancement for hospitals that already own provider offices as they can sell stakes in their offices now at a much higher price. It will also pressure the asset value of current independent offices as the demand to buy out small practices will somewhat recede as some practices are only bought out for the Medicare billing hack. Even with that, this is a good size policy win.
And that is what this was, a hack, an exploit on the system:
The aggregate average cost of a service includes salaries, supplies, depreciation, rent, capital investment, return on investment, training costs and a small fudge factor. Determining all of those variables is a level of expertise that I don’t have and it is a source of continual fighting. The Center for Medicare and Medicaid Services (CMS) has long recognized that running a hospital and running an actual outpatient clinic is expensive as the fixed costs are high. CMS has always allowed a facility fee to be charged to help cover those fixed costs of maintaining a radiology lab, of keeping a specialist on call, of having a crash cart available and of the thousand other things that a hospital or a full scale outpatient clinic will have that a typical doctor’s office won’t.
The problem is the hospital owned groups are the ones who designate which locations are typical doctor offices that they own and thus get paid the base rate without facility fees, and which locations are hospital based clinics that get paid an enhanced rate and facility fees. Hospitals have every incentive to designate every location that they own as either hospital based facilities or outpatient clinics. This can mean a doctor’s office that has always been as 123 Main Street which is thirteen miles from the hospital can be considered for billing purposes, part of the hospital.
There are a few important policy chunks in this change. The first is it is a direct cost savings for the federal government where there is minimal to no value being lost. Medicare patients will be happily indifferent. This is a net win even in a zero interest rate environment where deficits don’t matter and should be encouraged, as they should be spent on things that actually provide value instead of better hookers and more blow.
Secondly, there are two interesting little system wide cost savings measures. The first is a direct reduction in system health expenditures. Most private insurance contracts (on and off Exchange, and group insurance) with providers are based on Medicare plus something. When Medicare accepted a conversion of an office from an office to a hospital owned facility, and started to pay a higher rate, the hospital would change their billing practices for all of their other insurance carriers to reflect the conversion as well. So instead of paying $83.72 for a simple visit, insurers would now be paying $212.12 for that same service performed by the same doc at the same location with the same fish in the fish tank in the waiting room. Eliminating the conversion fee bump will directly reduce payments.
Somewhat more subtly, this policy change reduces the marginal incentive for hospitals to buy out physician groups. Right now the major incentives for hospitals to buy out providers are prestige, referral patterns and the pay bump. Once this policy goes into effect, prestige and referral patterns are the major incentives for hospitals to buy provider groups. Less consolidation means more competition, lower prices and lower utilization. Reducing the HHI index of provider concentration should increase consumer surplus through either higher quality or lower prices for the same quality. This is a pro-competitive and anti-hookers and blow policy change.
WereBear
The pie filter is back! (Sorry, Richard.)
And it’s like there are market forces which really can influence prices! Only they haven’t been used by Republicans!
Day-um.
raven
So we have two hospitals in town, one Catholic and one public. Apparently my doc has “privileges ” at both. I keep saying I want to go to the public that is two blocks from my house but I keep getting sent to St Mary’s. Is that a because of my doc is part of St. Mary’s Medical Group, Inc and that is what we are talking about here?
rikyrah
you are a true gem. I hope BJ knows it.
Richard Mayhew
@raven: I would have to actually speak with the doctor to know for sure, but that is a good guess. He might have privileges at both hospitals, but if he is employed by Hospital A, his bonus is based on how many dollars he sends to Hospital A for complex treatment while sending a patient to Hospital B does not generate a bonus for him.
Richard Mayhew
@raven: and yes, we’re talking about how St. Mary’s Medical Group gets paid for services performed at your doctor’s office when that office is located miles from the hospital. Under the new proposal, doctor office locations that are newly bought out by hospitals will be paid standard office practice rates instead of much higher hospital clinic rates.
Richard Mayhew
@WereBear: How do I set up the pie filter for chrome?
raven
@Richard Mayhew: Thanks! My only correction is that my GP is a she! I went to a guy who was an ex-Marine Corps Infantry Officer for years. I started with him just because a buddy had done so. The guy was a total asshole and I finally asked myself “why am I doing this”? Now I go to a woman who says, “oh, are you feeling ok”? I like that!
BGK
@raven:
The primary care practice I’ve been going to forever aggressively ages out patients. I missed the two year cutoff by one (expletive) day and was treated like a new patient, which my original doctor wasn’t accepting now. I went to a new-to-the-practice nurse-practitioner instead. Not only do I like her diagnostic manner better, she doesn’t get have a ridiculous patient load, and actually takes extended time with her patients.
pseudonymous in nc
This is a BFD, but there needs to be some tapering to the grandfather clause next time this comes up for negotiation. Just because Local Hospital Behemoth bought up all the PCPs and specialists in the city on the assumption that they’d be able to charge outpatient clinic billing rates doesn’t mean they get to do it till the end of time. If that fucks up their balance sheets, tough titty.
BTW, speaking of hacks to the system, Dan Davies’ thoughts on Valeant and ‘dispense-as-written’ are worth a look.
Betsy
You answered a question I’ve had for years. Why is the Mayo Clinic here in AZ centering some departments in the hospital building instead of the clinic building? I have seen a doctor at the Mayo Clinic here for years. If I go to the clinic building (Physical Med/Rehab), it’s one charge for the visit only. If I see him at his office in the hospital building (Pain Clinic), there is a facility fee tacked on. Same doctor, same chronic problem. Richard, is this because pain clinics are more sexy than PMR and inherently a larger revenue stream because of added procedures, etc?
dfinberg
I was also wondering if you wanted to make some comments on Valeant/Philidor, seeing as it appears to have mostly been working through the weirdness of the US Healthcare system. This is a pretty good (albeit from a short) discussion if you haven’t been following: http://brontecapital.blogspot.com/2015/10/comments-on-blockbuster-valeant.html
Richard Mayhew
@dfinberg: I do not know enough to intelligently comment
Cermet
Lets not forget one of the critical players that got this budget through congress – Nancy Pelosi. She also, be the man!
Shakezula
How does this fit with the requirement that off-campus, hospital-owned, offices will have to bill with a place of service code that indicates they’re facility (versus non-facility) starting in January?
Richard Mayhew
@Shakezula: I’m not sure, I’m not on the provider billing side. My knowledge of provider billing requirements is from the mirror end of the universe — what do we look at to pay a claim and what combinations make no sense or go straight to the fraud and abuse unit. I can’t speak intelligently about that requirement either.
WereBear
@Richard Mayhew: You need Tampermonkey from the Chrome Web Store, and otherwise follow these instructions:
http://ok-cleek.com/blogs/?page_id=19041