Hospital Acquisitions of Physician Practices Likely to Decrease

Image Credit: max sattana/shutterstock.com

On Nov. 2, 2015, President Barack Obama signed the Bipartisan Budget Act of 2015 (the Act) into law. This critical piece of legislation raises the federal debt ceiling and provides the framework for the federal budget through 2017. Of particular importance, the Act significantly changes the way Medicare will reimburse hospitals for outpatient services furnished in new off-campus hospital outpatient departments. This change signals the end of the incentive for hospitals to acquire physician practices to obtain a more favorable reimbursement rate.

Limited Payment

Specifically, Section 603 of the Act will limit Medicare reimbursement for services provided in new hospital outpatient departments to the amounts that the physician practice would receive for the same services, rather than the higher payments that hospitals have traditionally received under the Outpatient Prospective Payment System (OPPS) after converting physician practices to hospital outpatient departments.

Currently, Medicare reimburses providers differently depending on certain factors, including whether the service is inpatient or outpatient, the location where the service is provided, and the type of provider. Medicare generally pays hospitals more for physician office visits and related procedures and tests when the services are performed in a hospital outpatient department setting than a traditional physician practice receives for the same services. This is because the hospital receives both a facility fee under OPPS and a professional fee, with the combined amounts generally exceeding the payment that a physician practice would receive under the Medicare Physician Fee Schedule. This opportunity for higher reimbursement has been criticized for providing a financial incentive for hospitals to acquire physician practices and convert the practices to hospital outpatient departments.

MedPAC & White House Support

The Medicare Payment Advisory Commission (MedPAC), which is tasked with finding financial savings in Medicare, has expressed concern that evaluation and management visits and other services have been moving from physician offices to hospital outpatient department sites, resulting in higher Medicare and beneficiary spending. To reduce incentives to shift care to hospital outpatient department facilities when the patient does not need hospital-level care, MedPAC recommended adjusting the OPPS payment rates so that Medicare payment for evaluation and management office visits and various other services would be the same regardless of whether the services were provided in a physician practice or a hospital outpatient department. Paying the same amount regardless of the site of service is often referred to as site-neutral payment or site neutrality.