On December 18, 2015, the Government Accountability Office (GAO) released a report analyzing the increase in hospital/physician consolidation and a related increase in Medicare hospital outpatient spending.  Finding that hospitals have financial incentives to acquire freestanding physician offices and bill for their services as hospital outpatient services, GAO recommends that Congress direct CMS to equalize payment rates across practice settings.  GAO acknowledges that Congress took this action in the Bipartisan Budget Act of 2015 for new hospital outpatient departments – but recommends that Congress equalize payment rates across all hospital outpatient departments regardless of when the department began billing as provider-based.     

GAO found that between 2007 and 2013, the number of consolidated hospitals (i.e., those hospitals that acquired freestanding physician practices) increased from approximately 1,400 to 1,700, and the number of physicians practicing in hospital outpatient departments grew from 96,000 to 182,000.  During this same time period, Medicare expenditures for hospital outpatient services increased from $22.4 billion to $36.3 billion.  GAO found that there were more visits to hospital outpatient departments in counties with high levels of hospital/physician consolidation, suggesting that providers may have responded to the financial incentive present in Medicare’s current payment system.  (The report did not attempt to analyze potentially beneficial effects of consolidation such as increased patient access to care and improved clinical outcomes.)  GAO nonetheless recommended that Congress direct the Secretary of HHS to equalize the Medicare payment rates for services provided in all hospital outpatient departments and physician offices. 

The report is available here.

Reporter, Paige Fillingame, Houston, +1 713 615 7632, pfillingame@kslaw.com.