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Saving Healthcare Costs


On page 19 of Maine Gov. Paul LePage's proposed budget is a line item that captured the attention of lawmakers in the tiny northeastern state of 2.3 million - and legislators in other states looking for meaningful ways to cut corners without removing social services: "Elimination of separate facility fees for hospital-based physicians: $11.4 million."

The sizable cut reflected a significant change in the state's Medicaid program, MaineCare.

"Imagine if that scenario occurred in all 50 states ... and if we stripped it out of Medicare and commercial insurance," said Marni Jameson Carey, executive director of Orlando-based Association of Independent Doctors (AID), to the Practicing Physicians of America in the Library of Congress, in Washington DC, on Feb. 2. "Real money - hundreds of billions of dollars - could be restored instantly."

The Medicare Payment Advisory Commission (MedPAC) has suggested that if hospital facilities charged the same as independent doctors for the same services concerning 66 groups of services, taxpayers would save $900 million a year in Medicare costs alone.

Facilities fees, Carey pointed out, are added costs that provide zero value to patient care, but shove prices upward. "By eliminating them," she emphasized, "we could move toward site-neutral payments, and require payers to pay doctors the same amount for the same procedure, regardless of where it's done."

Hospitals have convinced lawmakers that facilities fees are necessary to help offset ever-rising overhead costs and operating hours.

"However, facilities fees ...incent hospitals to buy independent doctors because they can then charge more, which in part makes hospitals able to pay doctors more than they can make in an independent practice," explained Carey.

Compounding Factors

Hospitals have significant funds to finance practice acquisitions - and successfully lobby their arguments to lawmakers - because of the cash flow afforded by their tax-exempt status, which AID would like to see reversed in abusive situations. Nearly two-thirds of hospitals in the U.S. are tax-exempt, including Florida Hospital and Orlando Health.

"They pay no property tax, no tangible personal property tax, no sales tax and no income tax, state or federal ... in exchange for providing charitable care," said Carey, noting the "exchange" was set up decades ago when market conditions were quite different. "If Florida Hospital and Orlando Health weren't non-profits, they would've owed a combined $50 million in taxes last year on more than $2 billion of property across five counties. Fifty million dollars buys a lot of healthcare, police officers, classroom teachers, Little League fields. Buying small businesses (physician practices) that were paying taxes hurts the community."

Hospitals' buying spree of physician practices has left remaining doctors with weakened negotiating power. Circa 2000, two of three physicians were independent. Today, it's one in three. When it's time for contract renewal, hospital-employed physicians' bargaining sway is diluted because of non-compete clauses and other conditions.

"Hospitals also make more money from employed doctors because buying doctors expands hospitals' market share, which allows hospitals to negotiate higher reimbursements from payers, which contributes to the upward cost spiral," she explained.

Complicating matters, hospitals bargain with insurance companies and Medicare for higher reimbursements to save money, cut fees to independent doctors, and make it more difficult for independent doctors to remain in practice.

Key Factor: Transparency

Transparency in healthcare costs, especially if insurance companies were mandated to post costs online for consumers to compare the wide range of prices for the same procedure, would go a long way toward addressing the unlevel playing field, said Carey.

For example, an echocardiogram in a freestanding clinic averages less than $400, compared to roughly $1,600 in a hospital outpatient setting. Consumers struggling to understand the new healthcare paradigm are more prone to ask, "Do you take Blue Cross?" than to ask about fees, perhaps assuming incorrectly they are all the same for any given procedure.

For now, Connecticut is the only state with a law requiring facilities charging facilities fees to be made transparent to consumers.

"It's a vicious cycle perpetuated by bad payment policies," said Carey. "We respectfully ask the Trump Administration, as they work to replace Obamacare, to require site-neutral payments and to abolish facilities fees. Such moves would level the playing field, eliminate the incentive for hospitals to create monopolies, and save Americans hundreds of billions of dollars a year ... money for other needed services."

Concerning the failure of the Obamacare replacement bill in Congress last month, Carey and AID members weren't overly surprised. "The game isn't over," she said. "Though this bill failed, another one will come along. The process will just take longer than certain members of the administration - and many Americans - had hoped. However, even if this bill had passed, the measures we've been asking for - price transparency, an end to hospital-physician employment, and an end to facility fees, all of which contribute to high healthcare costs - wouldn't have been addressed until the second phase of policy making. The bill that got yanked was only the budget phase of the bill. That said, excessive healthcare costs will persist as long as hospitals get to charge many times more than independent doctors for the same procedures. Until we can cut the glut, and stop the abuses, largely driven by healthcare consolidation, we'll continue to endure huge price differences. Although we have a long road ahead, I remain hopeful we can fix this."

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