The President continues his unprecedented blizzard of executive orders (now numbering at least 129). One of interest last week was an executive order designed to reduce the cost of care for seniors. Primarily focused on the cost of prescription drugs, deep inside the order was a proposal to limit “a shift in drug administration volume away from less costly physician office settings to more expensive hospital outpatient departments.”
The order touches on a growing debate over the pricing of health care and the effort to establish “site neutral” health care payments.
Here is the background: The amount charged for medical procedures or services can depend as much on where they are performed as on the type of procedure or service provided. All else being equal, a procedure in a hospital is much more expensive than that same procedure done in a freestanding facility like a physician’s office or a clinic. The higher cost is meant to support a hospital’s more complex infrastructure, staffing and other expenses.
However, these higher prices are being charged for services provided at non-hospital locations, which often operate at less expense. That’s in large part because hospitals are buying up private practices, clinics, imaging centers and labs, using them effectively as a “cash cow" to charge more. Once acquired, these facilities often begin using the hospital billing code to charge hospital prices for services that were previously less expensive. When acquired by a hospital, physician practices charge about 14 percent more than when they were independent. That means patients and insurers begin to pay more for the same services. The only difference is that the non-hospital facility is owned by a hospital and begins to use the hospital billing code. And over half of physicians now work for hospitals and health systems.
As a result, patients, Medicare, and health insurance companies are paying higher prices for care than they otherwise would. For example, Medicare pays twice as much for procedures done in hospital-owned facilities as they would for those done in independent physicians’ offices. And for many patients, high deductibles and co-insurance policies mean that they may face a financial hit as well.
The “site neutral” approach requires that Medicare procedures and services are delivered at the same price regardless of the location, whether it’s a hospital, doctor’s office, imaging center or clinic. This would result in significant savings for consumers, employers and taxpayers. Decreased Medicare spending as a result of “site neutral” policies could save taxpayers $150 billion.
Saving that much money could help the Congress address its budget plans. The potential savings drove the House of Representatives to approve legislation that contained a “site neutral” provision. In the U.S. Senate, Republican Senator Cassidy and Democratic Senator Hassan have released a legislative framework for a “site neutral” payment policy. The President’s more limited proposal could trigger the making of a deal on the issue.
Here in New York, a similar approach is gaining steam.
The Fair Pricing Act has been introduced to advance a “site-neutral” approach to commercial health plans. The Act requires that low complexity, routine, medical procedures would have their prices capped at no more than 150% of Medicare to lower health benefit expenses for payers while making healthcare more affordable for patients. By reducing the cost disparities between hospitals and independent facilities, patients won’t be financially penalized for where they receive care, and employers and taxpayers will face less expense.
For patients paying significant out-of-pocket medical costs—like the uninsured, the underinsured, and others with coinsurance or high-deductible expenses—the Act limits their financial exposure. Onerous facility fees including any additional charges for routine office visits, basic diagnostic tests, or minor outpatient procedures, would also be prohibited under the bill. Transparency through data reporting and public availability of hospital-pricing information will further ensure patients make informed decisions on healthcare for themselves and their families. Publicly accessible pricing data allows patients to compare the costs of procedures and services across hospitals, independent clinics, and other providers. This helps ensure they can choose care options that best fit their financial situation and medical needs.
Every patient deserves fair priced care and has the right to be protected from sticker shock for medical services such as clinic visits, vaccines, and imaging procedures. These are among the many routine procedures New Yorkers experience every day that are threatened by unsustainable increases in healthcare costs. “Site-neutral” pricing ensures that patients will not be burdened by unsustainable pricing disparities. It’s time for federal and state policymakers to act.
Blair Horner is senior policy advisor with the New York Public Interest Research Group.
The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.