Study: Medicare payments for doctors much higher when billed by hospitals than by practices
Payments billed by hospitals were an average of $114,000 per doctor per year higher.
Medicare payments for physician services are significantly higher when billed by hospitals than by independent practices. According to a study of Medicare claims from 2010 through 2016 in “Health Services Research”:
- Payments billed by hospitals were an average of $114,000 per doctor per year higher.
- Medicare revenue for outpatient services billed by physician offices would have been 80 percent higher if they had been billed by a hospital outpatient department.
- The average bundle of Medicare services performed annually by physicians not employed directly or indirectly by a hospital was worth $141,000 if billed by an office and $240,000 if billed by a hospital.
- The payment differential between hospitals and private medical offices varied markedly by specialty. The payment gap was $63,000 for primary care physicians, $178,000 for medical specialists and $150,000 for surgeons.
The main reason for these large payment differences is that Medicare pays hospitals both a physician fee and a facility fee for each service, while private practices receive only physician fees. Although the professional fees are a bit lower in hospitals, the facility fees more than make up for the difference, and the total payments to hospitals are reflected in higher physician salaries and bonuses.
The Centers for Medicare & Medicaid Services has been trying to correct this imbalance for years with site-neutral payment policies. In 2015, the Bipartisan Budget Act authorized CMS to impose site-neutral payments but grandfathered in existing hospitals. Later CMS rulemaking expanded the equal payments, but the American Hospital Association sued to overturn this regulation. The courts have yet to decide the outcome.
The significant differential between Medicare payments has encouraged hospitals and health systems to acquire physician practices, according to the Medicare Payment Advisory Commission.
The Medicare payment differential is only one of many factors that have contributed to the huge increase in hospital employment of physicians over the past decade, the study noted.
For example, high levels of hospital market concentration and rural geography were associated with a higher probability of a physician going to work for a hospital.
Some health systems use physician integration as a bargaining chip with commercial health plans. Also, some physicians may find that independent practice is less viable than it used to be for a variety of reasons. It also has been suggested that many younger physicians prefer hospital employment to private practice because they crave economic security and work–life balance.
“These results cohere with recent work that has found much of the increase in U.S. health-care costs is attributable to rising prices or changes in service intensity,” the study concluded. “Integration between hospitals and doctors appears to threaten the affordability of care, with minimal gains in quality.”
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