A hospital advocacy group warns that the provision could impact patient care and urges Congress to drop it.


Oct. 28—A two-year bipartisan budget deal agreed to this week and barreling toward passage would bar acquired practices from billing Medicare at hospital outpatient rates.

The deal, which was hashed out between the Obama administration and congressional leaders, has a good chance of passing, according to published reports. It would fund some of the $80 billion in increased federal spending over the next two fiscal years through healthcare savings. Among the healthcare provisions was the elimination of pending Medicare beneficiary premium and deductible increases, as well as elimination of an Affordable Care Act large-employer mandate that requires automatic employee enrollment in health plans unless the workers opt out of the coverage.

The deal’s spending cuts include extension of the 2 percent Medicare sequester by an additional year and a site-neutral provision that would save $9.3 billion over 10 years by discontinuing Medicare hospital outpatient prospective payment system (OPPS) rates for practices acquired by hospitals in the future. After 2016, provision would leave such practices eligible only for payments through the ambulatory surgery center payment system or Medicare physician fee schedule. The provision would not affect existing hospital-acquired practices.

The provision came amid criticism of the ongoing wave of practice acquisitions by hospitals looking to increase their population health and integrated care capacity. A 2012 American Medical Association survey found that over 45 percent of internal medicine single-specialty groups had at least some hospital ownership, compared with less than 8 percent of surgical subspecialty, radiology, and anesthesiology groups.

Critics contended hospitals primarily were acquiring the practices to drive increased referral business from surrounding primary care practices and to pad their bottom lines through increased prices at the practices. The issue was recently spotlighted by the first national analysis of such deals, which concluded hospital and physician practice integration was associated with increases in outpatient prices, although not in inpatient prices.

Francois de Brantes, executive director of the Health Care Incentives Improvement Institute, said in an interview when that study was issued that the research was likely to fuel a further push to cut Medicare payment rates to hospitals.

But hospital advisors said the 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.

“Very few hospitals feel that they can be successful under the ACA without acquiring practices—in order to control the physician and the patient panel,” Matt Ulman, a former physician alignment consultant and contributor to the HFMA Value Project, said in an interview. “If you’re making it harder for them to acquire and control the networks and leverage the results, then they are going to lose money under value-based reform.”

A Broader Proposal

The site-neutral provision of the budget deal is more sweeping than prior proposals, such as recommendations of MedPAC, which has repeatedly recommended that Congress and the Centers for Medicare & Medicaid Services (CMS) equalize payments across practice settings only for evaluation and management services.

The budget deal would surpass that approach by including procedure and surgical codes, as well.

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,” Thomas Nickels, executive vice president for the American Hospital Association, said in a written statement. “Moreover, rural communities will be most adversely impacted, as hospitals will no longer be able to help physicians in these communities continue to provide access to their patients.”

Hospital advocates noted that 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).

Nickles urged Congress to strike the site-neutral provision from the budget deal. 

Other Impacts?

It is unclear whether the proposed change could impact pending or future hospital acquisitions of practices.

Almost 80 percent of the respondents in a 2014 HFMA survey of 118 hospital finance leaders said they were looking to expand primary care affiliations, while about 40 percent anticipated expanding specialty services within three years.

The Medicare payment chnge “could limit a hospital’s ability to acquire practices, which can trickle down to their effectiveness under value-based reform,” Ulman said. “Regardless, hospitals are going to still have to acquire hospitals, they’re just going to find ways to cut money on other services or dip into their cash reserves.”

There is wide variation among local U.S. markets in the availability of physician practices for acquisition or alignment, according to HFMA’s 2014 survey of senior financial executives. While 50 percent of the respondents indicated that several independent practices or medical groups remained available in their markets, nearly a third indicated that “virtually none” were available; less than 20 percent indicated that “most are available.”

Some hospital finance experts questioned whether the change would have much financial impact on hospitals because it does not directly affect higher outpatient payments from commercial insurers. However, those insurers could choose to follow the Medicare approach in the future.

“There’s plenty of thought out there that commercial rates are going to align with Medicare long-term,” Ulman said. “Over time, it hurts a hospital’s ability to acquire practices because they are going to make less and not going to be able to cover their losses from that extra fix costs that come from acquiring a practice.”


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Wednesday, October 28, 2015