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Yep, Hospitals Charge More For the Same Outpatient Service

By June 30, 2014Commentary

A brief from the National Institute for Health Care Reform confirms what so much evidence has already suggested, hospital outpatient departments charge more for the same service than when it is delivered in a physician’s office.  (NIHCR Brief)   This issue has been exacerbated by the ongoing acquisition by hospitals of doctor practices and consolidation among hospitals, leaving many markets very concentrated.  The brief is based on data from the autoworkers’ health plan and covers a number of states.  Several specific and common services were examined, including knee MRI, standard lab blood tests, colonoscopy and physical therapy.  While in some cases the median price in a hospital outpatient setting was close to the physician office price, the average was always quite a bit higher and the range or variation in pricing was much larger in the hospital outpatient departments than in community-based doctor practices.  For example, a knee MRI was an average of $900 in the hospital outpatient setting but only $600 in doctor offices, a colonoscopy was an average of $1383 versus $625 and a common blood test panel was $37 compared to $13.  You get the picture.

While this study covered data from a commercial health plan, Medicare has had the same differential baked into its reimbursement schedule for many services.  The Medicare Payment Advisory Commission for several years has strongly advised CMS to change this and equalize the payments.  Hospitals of course resist, claiming their costs are higher, which is the whole point and should be viewed as a reason to not pay them more, so they are incented to either reduce their costs or stop providing the service.  Hospitals also say that they treat sicker patients, which may not be true and also should be irrelevant, since for many services the patient’s degree of illness is irrelevant and when it is, the reimbursement often has levels of payment related to complexity.  For Medicare, which sets payments by fiat, there is no excuse for not immediately leveling payment across sites of service.  Commercial payers have a harder time because they typically must negotiate and hospitals now have extensive market power.  The brief recommends strategies such as narrow networks, tiered networks or reference pricing, but again health plans can’t dictate these in most markets.  Some regulatory intervention may be needed, and might be appropriate here given the billions of dollars of savings available.

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