Paying the Price for Hospital and Physician Practice Mergers

Hospitals are increasingly gobbling up physician practices and Medicare beneficiaries are paying the price. 

The Centers for Medicare & Medicaid Services (CMS) offers providers better reimbursement rates for services performed at physician practices. To take advantage of this, hospitals are buying such practices and integrating them into their services. 

The trend has significantly changed the country’s healthcare landscape. In 2012, 26% of physicians worked in a hospital, in 2018 that number climbed to 44%.

Medicare enrollees pay higher cost sharing prices for care received at physician practices, so more physician practice services have equaled greater medical bills for that population. However, it is not just impacting Medicare.

According to ModernHealthcare.com, the consolidation of hospitals and physician practices results in higher prices for those enrolled in commercial insurance prices because, “it increases the market share of hospitals and the bargaining power of physician practices.” 

Reform in CMS’s payment method might solve the problem even though site-neutral payments have been on the losing side of litigation. Last week, the agency finalized site-neutral payments for hospital outpatient departments in its final Hospital Outpatient Prospective Payment System (OPPS) rule despite a federal court ruling that the agency acted outside of its authority when it made the cuts.

The site-neutral payment policy is one in which payment is based exclusively on service provided, without consideration for the venue in which it is performed. This type of rule would, in theory, incentive Medicare providers to offer care at the most efficient and cost-effective location, uninfluenced by quirks of its reimbursement policy. 

Brian DeBusk, CEO of DeRoyal Industries, said, 

“The one takeaway that I have is that we have to change the ways hospitals are paid,” said Brian DeBusk, CEO of DeRoyal Industries. “I don’t see another solution.”

Implementing such a policy may be easier said than done. 

Last September, a federal judge blocked a site-neutral payment policy. In defense of her position, US District Judge Rosemary M. Collyer wrote,

“CMS believes it is paying millions of taxpayer dollars for patient services in hospital outpatient departments that could be provided at less expense prices in physician offices,” she wrote in her decision. “CMS may be correct. But CMS was not authorized to ignore the statutory process for setting payment rates in the Outpatient Prospective Payment System and to lower payments only for certain services performed by certain providers.”

Naturally, the decision was praised by healthcare organizations and it is safe to assume that hospitals will continue to acquire physician practices. 

According to Becker’s ASC Review, merger and acquisition activity in Q3 2019 was up by 12% from Q2, and 41% from Q3 2018. 

A report by  Hammond Hanlon Camp, predicts more of the same going forward. 

“With a push toward outpatient procedures and new CMS reimbursement rates, ASCs will continue to be an attractive sector for investment and consolidation,” H2C said.

Read about the increasing share of doctors working in hospitals, and other trends at Becker’s ASC Review.