One simple solution to skyrocketing medical costs

When my wife fell on the ice a few years ago, she thought her wrist was broken. She went to see her doctor, who advised her to have an X-ray taken in the same building. Since her wrist was still crooked months later, she had a second X-ray done at an imaging facility nearby.

Afterward, her health insurance company sent the “explanation of benefits” for each X-ray. The initial one was billed at $1,200, while the second one cost only $100.

Why the big discrepancy? Her doctor’s practice, the X-ray facility and the building they’re in are owned by a corporation that also owns several area hospitals. When she called its corporate office, a spokesperson told her the $1,200 X-ray was taken at a “hospital” and was therefore billed at the “hospital rate.”

She pointed out that the so-called “hospital” had no emergency room, no beds for patient admission and, furthermore, wasn’t even listed on our state’s insurance website as a hospital. The corporation caved and reluctantly refunded her the $1,100 difference in the price of the two X-rays.

While my wife’s predicament had a satisfactory ending, in most instances, hospital corporations win. And this winds up costing everyone, including Medicare and Medicaid, health insurers, Americans with high-deductible insurance policies and, ultimately, the taxpayer tens of billions of dollars,” according to Dr. Ezekiel Emanuel, chairman of the Department of Medical Ethics at the Wharton School of Business who’s a doctor of oncology.

Emanuel is only one of many medical experts, including members of the federal Medicare Payment Advisory Commission (MedPAC), who are incensed by the way hospital chains are buying up doctors’ practices and outpatient facilities to maximize profits. And this comes at a time when Congress continues to search -- so far in vain -- for a plan to salvage a health care system described as “broken,” hemorrhaging dollars and about to implode.

There’s a way to do it, said Emanuel, whose efforts to reform health care include serving as an architect of President Barack Obama’s Affordable Care Act, and who has now offered advice to President Donald Trump.

But a solution really needs to understand the problems. And this is one of them.

“Across the country hospital systems are scouring the market in attempts to acquire physician groups,” said Medical Billing Advocates of America in an article on its website. “This has contributed to increased costs so far, because some of the services and procedures that were formerly billed as doctor visits are now being billed as outpatient services – even if it is the same office. In one year, this [facilities fee] added up to $1.5 billion more in charges to the Medicare program.”

Medical Billing Advocates referred to this practice as “a real cash cow for hospital systems.”

But Medicare is only one source of funds for hospitals, which also collect from Medicaid, health insurers, uninsured patients or those insured with high deductibles. “Many are concerned, and rightfully so, that the excuse to charge a facilities fee is one of the main reasons hospital systems want to buy up practices,” said the article.

The American Medical Association did not respond to a request for information on how many doctors’ practices had been bought by hospital corporations, but the number is presumed to be large and growing. One hospital chain cited by Modern Healthcare, a magazine for health care executives, had an 86 percent jump in physicians and providers between 2009 and 2014. 

And doctors’ practices aren’t the only targets. Outpatient surgery centers, clinics and imaging facilities are also on their radar.

This maneuver allows hospital chains to submit bills with coding that infers that the patient was treated at a “hospital,” even if the location is just an office or outpatient facility. It also encourages these doctors, who are now hospital employees, to advise patients to use the hospital for routine procedures that could be done cheaper elsewhere.

That’s often a huge waste of money, said many experts, including Gerard Anderson, professor of medicine at Johns Hopkins University School of Medicine, one of the nation’s foremost hospitals. 

“There is no reason for anyone to pay more because the care was provided in a hospital instead of a doctor’s office. The doctor is the person providing most of the care, and for most procedures care can be provided in the doctor’s office,” said Anderson. “Paying twice as much for your annual exam in a hospital outpatient department simply makes no sense.”

But it does makes sense for the hospital. Government-set payment methodologies allow for different payments depending on the setting. Medicare alone uses a dozen different payment systems, according to the journal Health Policy. This allows for “dramatically different payment rates.”

Knowing how to place the patient in the right “setting” nets the hospital a lot more money. One study in the Journal of the American Medical Association suggests $75 more per visit without any increase in the level of care.

But Emanuel said it’s more likely a “ten-fold difference” in the amount charged. He added that “If there’s no difference in quality, you shouldn’t be paying more. They are profit-maximizing at our expense.”

In studies and briefs, hospitals argue that the services provided and the overhead associated with running a huge facility justifies the increased cost -- even though most patients don’t need to have a routine procedure such as a colonoscopy done in a hospital.

With additional funds from patients with health insurance, hospitals “cross-subsidize” those who walk through the door with emergencies but have little or no insurance, said Dr. Emanuel.

So he and others are proposing a simple solution: “site-neutral payments.” In other words, a procedure is a procedure, no matter where it’s done. “The address and the four walls around you shouldn’t make a difference, as long as the quality is the same.”

  • Ed Leefeldt

    Ed Leefeldt is an award-winning investigative and business journalist who has worked for Reuters, Bloomberg and Dow Jones, and contributed to the Wall Street Journal and the New York Times. He is also the author of The Woman Who Rode the Wind, a novel about early flight.