Budget Would Cut Medicare Rates to Hospital-Acquired Practices

The most noteworthy of the healthcare provisions in the budget approved by Congress last week would bar acquired physician practices from billing Medicare at hospital outpatient rates.


Congress worked with the White House to pass a two-year bipartisan budget agreement last week; several issues must be resolved before it is signed into law, but experts say it has a good chance of passing.


About $80 billion of the $112 billion budget increase would be funded through healthcare savings/spending cuts. The healthcare spending cuts include an extension of the 2 percent Medicare sequester for another year and a provision to discontinue Medicare hospital outpatient prospective payment system (OPPS) rates for practices acquired by hospitals in the future. After 2016, such practices would be eligible only for payments through the ambulatory surgery center payment system or the Medicare physician fee schedule. (“Budget to Slash Medicare Rates for Acquired Practices,” HFMA Weekly, October 30, 2015)


The provision would not affect existing hospital-acquired practices.


Critics had taken issue with the wave of hospital acquisition of physician practices, contending that hospitals wanted to increase their population health and integrated care capacity. They also noted that hospitals wanted to drive increased referral business from surrounding primary care practices “to pad their bottom lines through increased prices at the practices.” (“Budget to Slash Medicare Rates for Acquired Practices,” HFMA Weekly, October 30, 2015)

Note: see last week’s blog/newsletter, “Hospital-Physician Integration Increases Outpatient Prices.”


Hospital experts countered that claim by noting that practice acquisitions are needed to provide the type of integrated care required to meet emerging quality-based payment models established by public and private payers.


An American Hospital Association (AHA) spokesperson said in a written statement that reducing payment rates to acquired practices is an “untested idea” that “may endanger patient access to care, especially among patients who are sicker, the poor, minorities and seniors who often receive care in hospital outpatient departments.”


Medicare payments already fall short of covering the cost of care. Hospitals’ Medicare margins were -12.4 percent for outpatient services in 2013, according to the Medicare Payment Advisory Commission (MedPAC).


It is unclear whether the proposed change could affect pending or future hospital acquisitions of practices. The financial impact on hospitals also is not clear; some finance experts said they don’t expect a major change because the budget proposal doesn’t affect payments from commercial insurers. However, insurers could choose to align their rates with those of Medicare. The AHA spokesperson noted that the rate reduction hurts a hospital’s ability to acquire practices over time because they will make less and won’t cover their losses from the extra fixed costs that come from acquiring a practice.





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