On Jan. 12, The Medicare Payment Advisory Commission (MedPAC) voted 15-2 to recommend that the Centers for Medicare and Medicaid Services (CMS) eliminate provider-based billing. Recommendations from MedPAC are not legally binding, but since Congress created the independent agency, its recommendations carry great weight. If provider based billing is eliminated, it could slow the pace of physicians being hired by hospitals.
What is provider-based billing?
Currently, under the Medicare program, when evaluation and management services (including physician office visits) are provided in a hospital setting, Medicare lowers the payment to the physician (the professional component), but it makes a separate facility fee payment to the hospital that is larger than the reduction in the professional fee. The total payment for a service in the provider-based setting is typically approximately 10% higher than the payment in a freestanding clinic. In other words, if identical services are provided in a hospital and in a freestanding clinic, the total payment to the hospital is about ten percent higher.
The payment differential is premised on the belief that the cost of providing services in a hospital is higher than the cost of providing care in other settings.
Why does this matter?
Hospitals regularly highlight the reimbursement differential when they seek to employ or contract with physicians. Hospitals note that if the physician works in a provider-based clinic, the total reimbursement will be higher, permitting higher compensation to the physician. While this payment differential is certainly not the only factor driving the current wave of integration, it is a significant factor.
What will happen?
First, it is important to understand that the MedPAC recommendation has no immediate impact. It is possible that provider-based billing will continue indefinitely. While predicting the future of health policy is inherently a humbling experience, if I had to guess, I would predict that provider-based billing will be eliminated. It is an artifact of cost-based reimbursement. The predominant theme in health care at the moment is lowering payments, and I believe the government will choose to eliminate a payment mechanism that encourages providing care in a higher-cost environment. This prediction may be wrong, and even if correct, the change may be phased in over several years.
Assuming that provider-based billing is eliminated, it will remove one of the incentives encouraging integration. There are, of course, other factors that lead physicians to join hospitals. The fact that hospital have capital to aid in EHR and other investment is one draw. The ability to have a turn-key practice is another. A third factor is closely related to provider-based billing. Private insurers often pay hospitals or health systems more per RVU than they pay physician clinics. If private insurers were to adopt the approach urged by MedPAC and pay physicians and hospitals comparably for identical services, that would eliminate yet another factor encouraging physician-hospital integration. It is extremely difficult to anticipate how private insurers will react.
Since some private insurers have expressed concern that physician-hospital integration is raising reimbursement rates, one might expect that private insurers would be eager to take an opportunity to lower their payments by leveling the reimbursement playing field. There have been reports that some insurers are making payments to independent physician practice to encourage them to remain independent. Currently, however, many hospital systems receive higher payment than independent clinics. Whether that is due to the negotiating clout of larger health systems or a decision by insurers to permit higher payments is unknown.
The bottom line is that while the MedPAC vote is not legally significant, it may be a sign of a slight shift away from the current bias toward hospitals. For physicians who wish to preserve independent practice, it provides an opportunity to emphasize that independent clinics have historically operated more efficiently than their hospital-owned brethren. Physicians employed by hospitals needn't panic, but should recognize that this may ultimately provide a rationale for hospitals to revisit (management speak for lower) physician compensation. Finally, this should serve as an important reminder for everyone in the health care industry that the reimbursement rules are subject to change at any time.
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