Major Physician Reimbursement Gap for Independent Versus Hospital Docs

March 08, 2021 - Physician reimbursement for services performed by a doctor working for a hospital or health system is significantly higher than that paid to independent physicians for the same services, according to a recent Health Serves Research study.

The study of integrated and non-integrated physicians who billed Medicare between Jan. 1, 2010, and Dec. 31, 2016, found that Medicare physician reimbursement would have been $114,000 higher per physician a year if a physician were integrated compared to working in a physician practice.

Specifically, integrated primary care physicians earned 78 percent more in Medicare physician reimbursement, medical specialists 74 percent, and surgeons 224 percent.

Overall, the significant physician reimbursement gap between independent and hospital physicians demonstrated a “modest positive relationship to hospital-physician integration,” researchers stated in the study.

An increase in the outpatient payment differential of moving from the 25th percentile to the 75th percentile, for example, was associated with a 0.20 percentage point increase in the probability of integrating with a hospital, according to the study.

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And this effect was slightly larger among primary care physicians (0.27 percentage points) and medical specialists (0.26 percentage points) compared to surgeons whose payments did not have a positive relationship to hospital-physician integration.

“These results underscore that the factors driving integration are likely specialty-specific; that Medicare payment policy is one factor that affects consolidation in provider markets; and that tougher antitrust policy would be wise,” lead author Brady Post, PhD, of Bouvé College of Health Sciences at Northeastern University, tweeted about the study’s results.

Hospital-physician integration—otherwise known as vertical integration in healthcare—has been on the rise, increasing by about 20 percentage points or more across many specialists since 2007, Post added.

Research has shown that this type of healthcare merger and acquisition activity has led to increased prices, with consumers prices being about 5.8 percent higher, on average, for patients treated by physicians employed by hospitals versus physician-owned practices.

Just as troubling though is a recent study that found vertical integration in healthcare had little to no impact on quality of care. The findings suggested that physicians and hospitals may be getting closer to raise profits rather than care quality, researchers stated.

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Physicians and hospitals have long touted the benefits of vertical integration in healthcare, claiming that deals between hospitals and doctors would improve care coordination, access to care, and a variety of other factors resulting in better quality of care.

Additionally, many organizations have said that closer integration with physicians would bring down the costs of care for patients and the entire healthcare system.

But the body of literature around site-based payment differentials is pointing to higher paydays as the possible reason behind more hospital-physician integration.

“Site-based differentials involve Medicare paying higher fees after a practice integrates with a hospital, creating incentives for integration,” Post tweeted.

In his study, Medicare physician reimbursement would have been 80 percent higher, on average, if a practice were hospital-owned compared to physician-owned.

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Medicare physician reimbursement is higher for hospital-employed doctors because Medicare ties rates to fee schedules based on site of care. Under the Outpatient Prospective Payment System (OPPS) for hospital-employed physicians, there are two payments versus the one under the Medicare Physician Fee Schedule. Outpatient payments include a professional component and a facility component.

The facility component of the reimbursement is generally higher than the reduction in the office expense component of the professional payment, leading to a payment disparity between hospital-employed physicians and independents, explained healthcare economist Michael E. Chernew, PhD, of Harvard Medical School, in an accompanying commentary.

“These payment rules create an arbitrage opportunity. Hospital‐based billing increases total payments, and the additional payments can be allocated, explicitly or implicitly, between hospitals and physicians. As a result, there is an incentive for hospitals to buy, and physicians to sell, physician practices,” the healthcare economist explained.

Policymakers have tried to address the growing reimbursement gap through site-neutral payment policies. However, the hospital groups have challenged the reimbursement policies in court, arguing that outpatient providers employed by hospitals face higher expenses compared to independent physicians and sicker patients.

CMS has continued to push for greater site-neutral payment rates to bend the healthcare cost curve. But the fee-for-service (FFS) system may be to blame, Chernew stated.

“Many of the payment problems reflect the FFS system, with the need for hundreds (if not thousands) of prices. Yet, other payment models are not immune to these problems and in fact many are built on a FFS chassis. However, the broader incentives in episode or population‐based payment can ameliorate the problems because high spending associated with billing under the OPPS will reduce shared saving (or possibly generate shared losses),” Chernew explained.

Reducing reimbursement to hospital-employed physicians is necessary for driving down costs, but greater payment system reform will also be needed, the economist advised.