Medicare, Beneficiaries Saw Higher Prices at Provider-Based Facilities

Medicare and its beneficiaries paid significantly higher prices at provider-based facilities than they would have paid to freestanding facilities for the same services, according to a report from the Office of Inspector General (OIG).

OIG conducted the audit because three Medicare Payment Advisory Commission (MedPAC) reports and a previous OIG report had found that hospitals were increasingly buying physician practices and running them as provider-based facilities to receive higher payment rates.

OIG aimed to identify the potential cost savings to Medicare and its beneficiaries by comparing payments for services at provider-based facilities to what payments would have been at freestanding facilities for the same services.

The data reflects $3.95 billion in payments for evaluation and management (E/M) services from 2010 through 2017 in eight states: California, Colorado, Florida, Louisiana, Michigan, Missouri, New York, and Texas. Researchers compiled the data using outpatient and Physician Fee Schedule (PFS) claims for E/M services performed in provider-based facilities.

The report found that the Medicare program and Medicare beneficiaries could have seen significant savings for E/M services if the services were paid as if freestanding facilities provided them.

Medicare paid $3.2 billion and beneficiaries paid $794 million for E/M services performed at provider-based facilities during the audit period. If the physicians had been paid at the freestanding PFS non-facility rate and hospitals paid nothing under the Outpatient Prospective Payment System (OPPS), Medicare would have paid $1.8 billion, while beneficiaries would have paid $460 million.

This amounts to $1.3 billion in savings for Medicare and $334 million for Medicare beneficiaries, for a combined cost savings of over $1.6 billion.

In addition, if payments to provider-based facilities had been based on the freestanding facility rate, beneficiaries would have only had to make one coinsurance payment instead of two and the cost-sharing would have likely been lower as well, the report noted.

In the CY 2018 OPPS final rule and CY 2019 PFS final rule, CMS took measures to equalize payments between provider-based facilities and freestanding facilities. The agency adjusted the rates so that both facilities would be paid at 40 percent of what they would have been paid under the OPPS.

If this adjustment had been effective during the audit period, Medicare and its beneficiaries would have saved $1.4 billion on E/M services.

OIG recommended that CMS pursue legislative or regulatory changes to reduce costs for the Medicare program and Medicare beneficiaries by equalizing E/M payments between provider-based facilities and freestanding facilities

In response, CMS referred to regulatory action it had taken and noted that any further changes may require legislative action. The agency did not directly agree or disagree with OIG’s recommendation, but OIG noted that its comments were closely aligned with the report’s findings and suggestions.

Regarding the OIG report, the Medical Group Management Association (MGMA) voiced concern about implementing site-neutral payments for provider-based facilities and freestanding facilities.

“While MGMA is concerned with the financial sustainability of the Medicare program and opportunities for potential savings, the OIG report fails to consider what the appropriate payment amount should be across non-facility settings,” Anders Gilberg, senior vice president of government affairs at MGMA, said in a statement emailed to RevCycleIntelligence.

“The OIG report assumes the lower non-facility payment amount is the appropriate site-neutral rate. However, current non-facility setting payment rates fail to adequately reimburse the cost of furnishing E/M services for a majority of physician practices caring for Medicare beneficiaries,” Gilberg continued.

“Lowering payment rates for hospital outpatient settings without appropriately assessing payment adequacy for existing non-facility settings, such as the physician office, simply compounds the problem of inadequate reimbursement for E/M services in Medicare.”