As if to prove that there are exceptions to every rule, the usually dysfunctional Republican-majority House has at least one sensible bipartisan bill on its record. In December, a health care bill called the Cost Cutting and Improving Transparency Act was passed. By a vote of 320-71. And contrary to what Congress sometimes does, the bill's name isn't hype. In fact, it would end long-standing but unreasonable disparities in Medicare reimbursement for certain treatments depending on whether they are performed in a doctor's office or a hospital. Over the next 10 years, the savings would be more than $3.7 billion, according to the Congressional Budget Office. And beneficiaries' out-of-pocket costs would also drop by $40 per visit. What needs to happen next is for the Senate to follow suit.
The question is how Medicare will pay for drugs provided by health care providers, such as chemotherapy for cancer or intravenous fluids used to treat autoimmune diseases. Under current law, Medicare will pay him two to three times the amount for those treatments if they are done in a hospital rather than a doctor's office. The drug and its method of administration are the same. Only the price is different. In theory, this difference reflects the higher cost of operating a full-service, 24/7 hospital, as opposed to a physician practice that observes weekday office hours.
But in reality, Medicare rules create incentives for hospitals to buy out doctors' practices, allowing them to charge higher prices and pocket the profits. In 2021, Medicare paid for more than half of the hospitalization charges for chemotherapy services it funded, up from just over a third in 2012. In fact, research shows that consolidation among health care providers has led to a reduction in the number of private health insurance companies (often large employers) and their beneficiaries. Larger health systems have greater bargaining power in the health care market. The bill would also save money for private insurance companies, which pay hospitals nearly twice what Medicare charges.
The Low Cost Transparency Act would essentially eliminate these discrepancies, for example, for all drugs that must be administered by a health care provider rather than taken orally at home. Instead, we aim to create “site-neutral” payments. Indeed, his $3.7 billion in 10-year savings from Medicare seems small compared to the program's projected total hospital spending of $2.7 trillion. But hospitals are fighting this change so fiercely, no doubt because of the precedent it sets for other health services. In fact, that's exactly what should happen. There are many more expensive services at the hospital, including mammography, allergy testing, echocardiography, epidural injections, colonoscopies, and laser eye surgery. (The Medicare Payment Advisory Commission has identified 57 such services.) If everything were site-neutral, Medicare would save an estimated $150 billion over his 10 years.
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Employers support site-independent payments. They particularly like a similar Senate bill that would require field neutrality not only for Medicare but also for private insurance companies. Unfortunately, this bill has stalled due to concerns from senators from both parties that it would negatively impact rural hospitals. The American Hospital Association says the House bill's facility neutrality provisions would cost rural hospitals $272 million over the next 10 years, force them to cut staff and services, or in some cases close, and reduce the number of hospitals in these areas. He said the serious medical shortage will worsen.
Ideally, however, federal support for hospitals would be provided directly and transparently, rather than through differential payments for patient services. If the needs of rural hospitals are the main obstacle to passing sensible facility-neutrality policies for Medicare, then those hospitals should be subsidized openly. It's not 100% clear whether hospital-owned clinics, which charge more to perform chemotherapy than independent clinics, actually use every dollar to offset the owners' higher costs. Notably, the House bill again asks hospitals to be more transparent about their prices, but hospitals are clearly reluctant to do so. Only one-third of hospitals are currently complying with his three-year-old federal requirement to post all charges online in an easy-to-read manner, according to a new study by PatientsRightsAdvocate.org.
Medicare's site-neutral payment policy would not “reduce” hospital funding, as the AHA and other advocates of the status quo claim. It simply eliminates the payment disparity that was unintentionally driving up costs. The House bill, as the bill's title suggests, would be a small but important step toward making Medicare payments lower and more transparent. The Senate should send the bill to President Biden for his signature before this Congress ends.
