Think Tank Weighs In on Medicare Payments for Ambulatory Services
WASHINGTON — As Congress considers proposals that would eliminate existing differences in Medicare payments for ambulatory services, a think tank is warning lawmakers to be on the lookout for unintended consequences.
In a new paper published by the American Enterprise Institute, a center-right public policy think tank based here in Washington, authors Loren Adler and Matthew Fielder focus primarily on a proposal before the House Committee on Energy and Commerce that would reduce Medicare payments to hospital outpatient departments and ambulatory surgery centers for services most commonly delivered in a lower-cost setting, like a doctor’s office.
As Alder, a fellow and associate director at the USC-Brookings Schaeffer Initiative for Health Policy, and Fielder, a senior fellow at the same institution, note, Medicare payments for ambulatory services currently vary based on where services are delivered.
Payments are generally much higher if a service is delivered in a hospital outpatient department that resides on a hospital’s campus (or, for some services, in certain “grandfathered” off-campus HOPDs) rather than a physician’s office, where it would be paid at the Physician Fee Schedule rate.
Payments for services delivered in an ambulatory surgery center are also generally higher than those delivered in a physician’s office, albeit to a lesser degree, they write.
The proposal before the House committee mirrors an approach discussed last June by the Medicare Payment Advisory Committee, a nonpartisan congressional agency that advises Congress on issues affecting the Medicare program.
Alder and Fielder say the policy would generate substantial savings for the federal government, which would inevitably raise the question of how to use these funds.
Lawmakers, for instance, may wish to return some of these savings to affected providers.
But Alder and Fielder say they “harbor doubts” that this would be the best use of the funds.
“In general, savings should be directed to where they will generate the most value — whether that be priorities within health care, priorities in other domains or deficit reduction. It would be a surprising coincidence if the highest-value use of these funds — even within the health care sector — happened to be returning them to the precise group of providers they came from,” they wrote.
Alder and Fielder also question red flags raised by some hospitals that the proposed changes would threaten patient access and the quality of care patients receive.
“The services targeted by this proposal are, by design, services that are most often provided in lower-paid settings, which implies that those lower payment rates will be adequate to ensure continued access to these services, whether in the HOPD or ASC setting or elsewhere,” they wrote, adding, “A more plausible concern is that this reform will broadly reduce hospitals’ revenues, which could force some providers to take steps to cut costs, but this may or may not have inappropriate effects on quality of care.”
At the same time, Alder and Fielder caution lawmakers that as they consider changes to how ambulatory services are billed, they take care to avoid reintroducing incentives to shift services out of physician offices and into hospital outpatient departments.
The proposal considered by the Energy and Commerce Committee includes a provision designed to mitigate policy-induced revenue reductions for certain hospitals.
Specifically, as Alder and Fielder explain, revenue reductions would be capped at 4.1% of total Medicare revenue for hospitals with an above-median share of low-income patients.
The authors don’t like this approach, saying they fear it would partially reintroduce incentives to shift services into HOPDs.
“Once a hospital’s revenue loss reached the 4.1% cap, the compensatory payments it received would grow with each additional service it delivered in the HOPD setting — and by the precise amount of the difference between the HOPD and physician office payment rate. As a result, such a hospital would still face the same incentive to shift services into the hospital setting that it faces under current law,” they explain.
But Alder and Fielder don’t just rattle off a series of complaints. They also suggest a few alternatives for lawmakers to consider.
The first would be to mitigate financial losses for the most-affected providers.
Under this plan, Alder and Fielder say, Congress could limit the revenue reductions for affected hospitals, as envisioned in the Energy and Commerce proposal, but in a way that does not reintroduce incentives to shift services into HOPDs.
“One way to do that would be to tie the amount of compensatory funding each hospital received to the volume of affected services that the hospital delivered in a reference year prior to enactment rather than the current year,” they write.
Their second option would be to mitigate financial losses for the hospital industry more generally.
Rather than targeting funds to hospitals based on which ones would lose the most revenue from the shift to site-neutral payments, lawmakers on Capitol Hill could return money to hospitals by broadly increasing rates for the Integrated Personnel and Pay System and non-site-neutral Outpatient Prospective Payment System services.
Their third option would be to increase Physician Fee Schedule payment rates.
“This change would directly offset some of the revenue losses to hospitals that would now be paid under the Physician Fee Schedule for many ambulatory services, with larger benefits for hospitals that deliver more such services, while also benefiting physicians who deliver ambulatory services in the physician office setting,” they wrote.
Despite the fact all three options were crafted by them, Alder and Fielder admit that they don’t really like option one very much, admitting “there is no clear reason to believe that funds given to these hospitals would do more to benefit Medicare beneficiaries, and there are downsides to giving these hospitals a permanent competitive advantage over their peers.”
When it comes to the second and third options, Alder and Fielder take a more benign view, suggesting a choice between the two “should hinge on one’s views about the relative adequacy of Medicare’s payments for the relevant categories of services under current law.”