Guest: Medicare payment policies fueling rising costs can be fixed by federal legislation.
Do you know who owns your local doctor’s office? Most physicians owned and operated their own practices historically, but that has changed. Now, more than ever, a corporation or large hospital system will likely own your doctor's office. A careful examination shows that current federal policies — particularly Medicare policies — are fueling this trend and increasing health care costs for consumers nationwide.
Medicare is one of the largest federal programs. It makes up a whopping 12% of the annual federal budget. It accounts for $900 billion in health care expenditures every year, roughly 21% of all U.S. health care expenditures. This massive amount of funding gives Medicare significant market power, so any distortions in the health care market the program causes can reverberate across the country at a large scale.
Medicare policies that reimburse physician-owned practices and hospital systems at different rates are one such distortion that drives up consumer costs. Instead of basing reimbursements on the service provided, Medicare looks at the owner of facilities where services occur and pays hospitals a higher rate. According to a recent study, primary care physicians received 78% more from Medicare when providing services under a hospital system.
Michael Chernew, professor of health care policy at Harvard Medical School, correctly notes that this dual payment scheme creates “an incentive for hospitals to buy, and physicians to sell, physician practices.” In just four years, the percentage of physician practices that hospitals and corporate entities owned rose from 38.8% in 2019 to 53.6% in 2022. For the first time in American history, more than half of all physician practices are owned by hospitals and corporations.
As hospitals buy up small physician practices, competition in the health care market plummets. While corporate-owned practices get more money from Medicare, they can also in a less competitive market raise prices for everyone else. A study from Northwestern University found “that the prices for the services provided by acquired physicians increase by an average of 14.1% post-acquisition.”
Fortunately, the solution to this problem is as simple as its cause. The Medicare payment policies fueling consolidation and rising costs can be fixed by federal legislation requiring Medicare to adopt site-neutral reimbursement payments, which are based on the care provided to patients, not the facility owner. Legislation would provide equal reimbursement for the same care and remove the incentive fueling consolidation.
Site-neutral payments would result in massive savings for consumers and taxpayers. The Committee for Responsible Federal Budget (CRFB) estimates that the Medicare program would save $153 billion over 10 years following the implementation of site-neutral payments.
Savings would not be limited to the federal government alone. The average American also would see cost savings. According to Jackson Hammond of American Action Forum, site neutrality also could help to stop “the cost-increasing consolidation of the U.S. health system [where] hospitals [can] purchase physician practices in order to receive higher payments and reduce competition.” In fact, CRFB estimates the total savings for national health expenditures would exceed $450 billion, including a $386 billion reduction in commercial insurance premiums.
The best government policy is invariably the repeal of prior government policy and this issue is no exception. Government distortion of a functional medical marketplace runs deep, but this is an easy one to fix.
This is the moment for bipartisan and common-sense legislation. It is time to roll back this particularly distorting Medicare payment policy, one that pits small doctor offices against large hospital systems, and limits competition. Taxpayers and health care consumers need swift action and a break from government breaking their backs.
Dr. G. Keith Smith is a board-certified anesthesiologist and co-founder of The Surgery Center of Oklahoma.
This article originally appeared on Oklahoman: Time for bipartisan legislation to roll back Medicare payment policy
