After months of debate, Congress has finally raised the debt ceiling. However, the outlook for the nation’s fiscal health remains bleak, as lawmakers have taken federal health and entitlement programs off the table. Eventually, Congress will have to address this issue, and reducing overpayments in the Medicare program could be a solution that benefits taxpayers and seniors alike.
As the largest single payer of medical services, Medicare significantly impacts the rest of the healthcare system. One example of this is “site-of-service differentials” in reimbursement, where Medicare pays more for the same service based on where it was provided. For instance, Medicare pays an average of 222 percent more for a service provided in a hospital outpatient department than in a doctor’s office, even if the underlying health needs are the same. Hospitals claim that these differentials are justified because they see sicker patients, provide more intensive services, and have more regulatory requirements than doctor’s offices. However, Medicare already provides add-on payments for intensive services and for factors like rural status, so there is no need to set higher prices for simple clinic visits or imaging services just because they are done in a hospital.
Taxpayers and seniors both lose when Medicare pays more than it should, as seniors’ co-payments are a percentage of the Medicare payment. Some hospitals respond to this by buying out independent physician practices and rebranding them as off-campus hospital outpatient departments, making the same service provided by the same team of doctors and nurses much more expensive.
To address this issue, policymakers have implemented some “site-neutral” policies to pay the same for a service regardless of where it is performed. In 2015, Congress required Medicare to pay future off-campus hospital outpatient departments at a rate equivalent to those of physicians’ offices. A 2018 Trump-administration regulation required similar payment rates for clinic visits in off-campus departments that were exempted from that law. Leaders from both parties have sought to extend site-neutral payments to off-campus hospitals and post-acute-care facilities, which could save hundreds of billions of dollars in federal spending and reduce seniors’ premiums and out-of-pocket costs.
Site neutrality is a policy that has bipartisan interest and could significantly reduce federal spending and seniors’ healthcare costs. However, lawmakers must resist pressure from big hospital systems and other provider groups that financially benefit from the current system. While some politicians may be hesitant to make changes to a popular program like Medicare, there is no choice as deficits over the next ten years will exceed $20 trillion, and the debt-ceiling bill will reduce that by only about $185 billion over the next few years. Medicare spending is expected to double between 2023 and 2033, and its unfunded liabilities over the next 75 years exceed $50 trillion. Policymakers must act now to avoid severe benefit cuts or tax hikes in the future.
Reforming Medicare will be a challenging task, but cracking down on overpayments through site neutrality would be a great start. This policy is straightforward, has a significant payoff, and has bipartisan interest. Getting off on the right foot can set the stage for bigger reforms down the line.
