Friday, June 2, 2023
HomeEconomicWeighing coverage choices for returning financial savings from site-neutral fee reforms to...

Weighing coverage choices for returning financial savings from site-neutral fee reforms to hospitals

Congress is at present contemplating insurance policies that may increase site-neutral fee for ambulatory providers within the Medicare program. These insurance policies would scale back hospital revenues, whereas producing financial savings for Medicare beneficiaries and the federal authorities and eradicating an incentive to shift providers out of doctor workplaces and into hospitals. Some policymakers have steered utilizing a portion of the federal financial savings to minimize the impression of a site-neutral coverage on hospital funds. Whereas we query whether or not that is the highest-value use of those funds, this paper discusses how policymakers might do that with out reintroducing incentives to shift providers into the hospital setting, as would happen below some current proposals.

As background, Medicare funds for ambulatory providers range primarily based on the place providers are delivered. Funds are usually a lot larger if a service is delivered in a hospital outpatient division (HOPD) that resides on a hospital’s campus (or, for some providers, in sure “grandfathered” off-campus HOPDs) relatively than a doctor’s workplace. Funds for providers delivered in an ambulatory surgical procedure middle (ASC) are additionally usually larger than these delivered in a doctor’s workplace, albeit to a lesser diploma.

As we now have beforehand argued, these fee variations will not be essential to make sure that sufferers can entry applicable care:

Paying extra when a service is delivered in an ASC or HOPD relatively than a doctor’s workplace usually makes little sense. To make sure applicable entry whereas containing program prices, Medicare funds ought to usually mirror an environment friendly supplier’s price of delivering care. Thus, to justify paying extra for a service in facility settings, the scientific wants of the sufferers handled in amenities should differ in ways in which make delivering that service extra expensive. For the sorts of providers generally delivered in doctor workplaces (e.g., workplace visits, imaging, and drug administration), it’s arduous to see how massive price variations might come up, particularly because the variations between sufferers handled in HOPDs and doctor workplaces seem modest.

However they do have essential prices. They impose direct monetary prices on Medicare beneficiaries and the federal authorities, within the type of larger premiums and better cost-sharing. In addition they encourage shifts of providers out of doctor workplaces and into the hospital setting. Such shifting usually entails hospitals shopping for up doctor practices, which makes doctor markets much less aggressive and thereby raises the costs negotiated by industrial insurers. And whereas it will not be intrinsically extra expensive to ship a majority of these providers within the hospital setting, finding as many physicians as potential on hospital campuses (or grandfathered off-campus HOPDs) could enhance suppliers’ prices and make accessing care much less handy for sufferers.

Congress is at present contemplating proposals that may take away these fee variations. One notable proposal thought-about by the Home Committee on Vitality and Commerce would scale back Medicare funds to HOPDs and ASCs for providers which can be mostly delivered in a lower-cost setting (e.g., if a service is most ceaselessly delivered in a doctor’s workplace, then it might be paid on the Doctor Payment Schedule fee). This proposal mirrors an strategy mentioned in June 2022 by the Medicare Cost Advisory Fee.

This coverage would generate substantial financial savings for the federal authorities, elevating the query of find out how to use these funds. Policymakers could want to return a few of these financial savings to affected suppliers. We harbor doubts that this could be the very best use of those funds. Usually, financial savings needs to be directed to the place they are going to generate essentially the most worth—whether or not that be priorities inside well being care, priorities in different domains, or deficit discount. It will be a stunning coincidence if the highest-value use of those funds—even inside the well being care sector—occurred to be returning them to the exact group of suppliers they got here from. Furthermore, we imagine that issues from hospitals that these adjustments will threaten entry and high quality of care are of questionable advantage. The providers focused by this proposal are, by design, providers which can be most frequently supplied in lower-paid settings, which means that these decrease fee charges shall be sufficient to make sure continued entry to those providers, whether or not within the HOPD or ASC setting or elsewhere. A extra believable concern is that this reform will broadly scale back hospitals’ revenues, which might power some suppliers to take steps to chop prices, however this will likely or could not have inappropriate results on high quality of care.

However, we acknowledge that returning a few of the financial savings to affected suppliers might reduce political resistance to the coverage and handle entry or high quality issues that do exist. Nonetheless, if policymakers take this strategy, they need to keep away from reintroducing incentives to shift providers out of doctor workplaces and into HOPDs. Extra usually, they need to favor choices that foster environment friendly, high-quality care supply.

The Vitality and Commerce proposal mentioned above included a provision that was designed to mitigate policy-induced income reductions for sure hospitals. Particularly, income reductions can be capped at 4.1% of whole Medicare income for hospitals with an above-median share of low-income sufferers (as measured utilizing strategies for figuring out Medicare disproportionate share funds to hospitals).

Sadly, this coverage would partially reintroduce incentives to shift providers into HOPDs. As soon as a hospital’s income loss reached the 4.1% cap, the compensatory funds it acquired would develop with every extra service it delivered within the HOPD setting—and by the exact quantity of the distinction between the HOPD and doctor workplace fee fee. Because of this, such a hospital would nonetheless face the identical incentive to shift providers into the hospital setting that it faces below present regulation. Because of this, we suggest towards this coverage. Nonetheless, there are different choices to realize related targets whereas retaining improved incentives.

Choice 1: Mitigate monetary losses for the most-affected suppliers

Congress might restrict the income reductions for affected hospitals, as envisioned within the Vitality and Commerce proposal, however in a approach that doesn’t reintroduce incentives to shift providers into HOPDs. A method to do this can be to tie the quantity of compensatory funding every hospital acquired to the amount of affected providers that the hospital delivered in a reference yr previous to enactment relatively than the present yr.

Concretely, policymakers might direct CMS to do the next:

  • Compute the proportion discount in whole Medicare income that every hospital would have skilled on account of an unconstrained model of the site-neutral coverage in some reference yr (e.g., the ultimate yr earlier than the coverage change was enacted).
  • For every hospital, calculate the distinction between this unconstrained loss and a specified most allowable share income loss.
  • For hospitals with income reductions bigger than the utmost allowable loss, compute the greenback quantity that may have been required to return the hospital’s income to the goal stage within the reference yr.
  • In every future yr, the hospital would obtain a lump-sum switch in that quantity, maybe adjusted for components like inflation or market-wide quantity tendencies.

As a substitute, policymakers might direct CMS to compute the proportion enhance in charges for inpatient potential fee system (IPPS) providers and non-site-neutral outpatient potential fee system (OPPS) providers that may have been required to return every hospital’s income to the goal stage within the reference yr.[1] (Right here, we use the time period non-site-neutral OPPS providers to confer with OPPS providers that may not be topic to site-neutral fee below the proposal.) The hospital’s fee charges for IPPS and non-site-neutral OPPS providers would then be elevated by that share in future years.

This second strategy might have benefits and drawbacks relative to the primary strategy. In contrast to the primary strategy, the second would enhance hospitals’ marginal return to delivering IPPS and non-site-neutral OPPS providers, which is a bonus if policymakers are involved about beneficiary entry (and an obstacle if they’re involved about overutilization). A draw back of the second strategy is that some non-site-neutral OPPS providers can, actually, be delivered in non-hospital settings; thus, this strategy would modestly strengthen incentives for hospitals to shift a majority of these providers into HOPDs. In the event that they wished, policymakers might keep away from this drawback by growing costs solely for IPPS providers; the relative deserves of an IPPS-only strategy would additionally depend upon the relative adequacy of Medicare’s funds for inpatient versus outpatient hospital care below present regulation.

Like the present Vitality and Commerce coverage, this coverage could possibly be focused to specific hospitals (e.g., hospitals that serve a big proportion of low-income sufferers), both by limiting it solely to these hospitals or by various the utmost allowable share income loss. One might additionally construction one of these coverage to permit for a phase-in that limits income reductions extra aggressively in early years than in the long term.

Choice 2: Mitigate monetary losses for the hospital trade extra usually

Fairly than concentrating on funds to hospitals primarily based on which of them would lose essentially the most income from the shift to site-neutral funds, policymakers might return cash to hospitals by broadly growing charges for IPPS and non-site-neutral OPPS providers (or some subset thereof).[2] Like Choice 1, this selection would additionally largely keep away from reintroducing incentives to shift providers into HOPDs, topic to the caveat mentioned above that growing fee charges for non-site-neutral OPPS providers would modestly strengthen incentives for hospitals to shift these providers into HOPDs. As with Choice 1, policymakers might specify bigger will increase for sure sorts of hospitals if there are particular issues about beneficiary entry or high quality of look after these hospitals, they usually might take into account phasing such a coverage down over time.

Choice 3: Improve Doctor Payment Schedule fee charges

Lastly, policymakers might think about using some financial savings to extend fee charges below the Doctor Payment Schedule. This might take the type of a direct enhance in charges and/or altering how charges are up to date over time (e.g., by restoring some linkage between charges and a value index). This modification would straight offset a few of the income losses to hospitals that may now be paid below the Doctor Payment Schedule for a lot of ambulatory providers, with bigger advantages for hospitals that ship extra such providers, whereas additionally benefiting physicians who ship ambulatory providers within the doctor workplace setting. Like the opposite two choices, this selection would keep away from reintroducing incentives for hospitals to shift providers from doctor workplaces into HOPDs. This coverage may have the political good thing about increasing the constituency for site-neutral fee reforms to incorporate doctor teams.


If policymakers select to make use of a few of the federal financial savings from increasing site-neutral fee to minimize monetary impacts on hospitals, they need to keep away from reintroducing incentives to shift providers out of doctor workplaces and into HOPDs. This evaluation presents three approaches that may meet that commonplace.

Among the many three choices that we take into account right here, we might usually encourage policymakers to keep away from Choice 1 since it might present extra help to hospitals that had been extra aggressive in shifting doctor providers into HOPDs. There isn’t a clear cause to imagine that funds given to those hospitals would do extra to learn Medicare beneficiaries, and there are downsides to giving these hospitals a everlasting aggressive benefit over their friends. (A caveat is that Choice 1 could possibly be price contemplating if it helped policymakers extra tightly restrict the entire quantity of funds returned to hospitals.) We shouldn’t have a transparent view on the selection between Choice 2 and Choice 3, however this alternative ought to hinge on one’s views concerning the relative adequacy of Medicare’s funds for the related classes of providers below present regulation.


[1] If policymakers elevated IPPS charges, they could want to switch a few of the financial savings below the site-neutrality coverage to the Hospital Insurance coverage Belief Fund so as to keep away from accelerating its insolvency.

[2] MedPAC has just lately thought-about an analogous coverage that may enhance costs just for non-site-neutral OPPS providers. The relative deserves of those approaches depend upon the relative adequacy of funds for the varied providers at baseline.

The Brookings Establishment is financed via the assist of a various array of foundations, firms, governments, people, in addition to an endowment. An inventory of donors might be present in our annual studies revealed on-line right here. The findings, interpretations, and conclusions on this report are solely these of its writer(s) and will not be influenced by any donation.



Please enter your comment!
Please enter your name here

Most Popular

Most Popular

Recent Comments