Medicine and Money by Anastasiia Gudantova is licensed under Unsplash

Imagine that your favorite local diner is bought by a large franchise, and the price of your usual sandwich doubles, even though it’s the same sandwich, with the same underlying costs. This mirrors what happens in healthcare, where prices increase for the same services when a physician practice is acquired by a hospital.

Under the current system, Medicare erroneously pays hospital-owned facilities up to 217 percent more than other types of medical practices for the same procedure.

The disparities in Medicare payments not only inflate healthcare costs unnecessarily, but also create a system of winners and losers that distort the marketplace. The current structure as it stands arbitrarily benefits hospitals and disadvantages small facilities, all by the government placing its thumb of the scale.

Site-neutral payments are a policy designed to eliminate disparities in Medicare reimbursements by ensuring that the same services are paid at the same rate, regardless of the setting in which they are provided. At present, Medicare categorizes providers differently based on their ownership or affiliation. For instance, hospital-owned facilities are often classified under the Outpatient Prospective Payment System which allows for higher reimbursement rates compared to independent practices.

Site-neutral payments are a needed policy change to fix our broken healthcare system, reduce costs for Medicare, the taxpayer, as well as realign incentive structures to encourage more efficiency within hospitals. This policy is designed to standardize reimbursement rates for specific medical procedures across different healthcare settings, ensuring that payment is consistent regardless of where the service is provided.

This is why Americans for Tax Reform has previously joined an ideologically diverse collation letter in support of site-neutral payments.

At present, the government-created incentive structure encourages hospitals to charge patients the highest possible fees for procedures, in a setting with the highest reimbursement rates. This has resulted in a massive consolidation of the industry as hospitals have been buying up smaller physician practices. From 1998 to 2022 there were over 1,800 hospital mergers. By 2020, more than half of physicians worked either directly for a hospital or hospital-owned physician practice.

There has been some movement recently regarding site-neutral payment policies. Last December, the House of Representatives ended up passing H.R. 5378, the Lower Costs, More Transparency Act in a rare 320-71 bipartisan vote. This legislation mandated site-neutral payments, particularly targeting services like drug administration that are typically provided in independent practices. However, after a high-pressure lobbying effort from hospitals, the bill went nowhere in the Senate.

The American Hospital Association (AHA) has been strongly opposed to this policy for years. They argue that site-neutral payments would lead to higher overhead costs for hospitals, requiring increased fees on patients. Further they claim this policy would decrease access to care for underserved communities due to higher financial restraints on hospitals.

Despite the AHA’s claims, the current site dependent cost structure has led to massive price increase for the same procedure. After a hospital acquisition, prices go up on average 14.1 percent. Cancer patients who receive care in a hospital-owned facility pay 141 percent more for the same exact procedures.

Adopting site-neutral payments would not only save taxpayers billions of dollars in Medicare savings, but these changes would also revert back to patients. The out-of-pocket savings for Medicare enrollees would total around $471 billion over the next decade according to Blue Cross Blue Shield.

Hospitals represented by the AHA are not motivated to support the current cost structure for some altruistic reason. Rather, they want the law to remain the same because it limits competition. According to Rita Numerof with Forbes, “when outpatient surgical centers became more prevalent, hospitals bemoaned that the ‘easy patients’—those needing endoscopy, cataract surgery, etc.—were being ‘picked off.”

Site-neutral payments encourage greater access to care. Lower prices, of course, allow for more patients to afford medical services. If Medicare paid out the same rate for procedures regardless of location, facilities and hospitals alike would need to adjust their cost structure to entice customers and compete in the market.

The argument that the current payment structure provides a higher quality of care is also unfounded. Advancement in technology over the past few decades has led to many procedures being migrated to smaller facilities. With some services such as hip arthroplasty, a National Institute of Health report “found that outpatient surgeries for this procedure actually have comparable or better clinical outcomes than inpatient operations.” Under the current rules, this procedure would pay out more to hospital-owned facilities than independently owned facilities.

There is no reason the government should be reimbursing entities at different levels for the same service. This is simply an example of the government picking winners and losers. Not only is the current payment structure unfair, but it leads to worse outcomes for patients and taxpayers.