After months of debate, Congress has finally raised the debt ceiling. However, the nation’s fiscal health remains a cause for concern. Lawmakers have avoided addressing the most expensive items, such as federal health and entitlement programs, but they will eventually be forced to confront this issue. One solution could be to reduce overpayments in the Medicare program, which would benefit taxpayers and seniors.
As the largest single payer of medical services, Medicare greatly influences the healthcare system. One example of this is the “site-of-service differentials” in reimbursement, where Medicare pays higher amounts 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. While hospitals argue that these differentials are justified due to sicker patients, more intensive services, and more regulatory requirements, Medicare already provides add-on payments for these factors. Therefore, there is no need to set prices higher for simple clinic visits or imaging services just because they are done in a hospital.
Overpayments by Medicare not only harm taxpayers, but also seniors who receive care. Seniors’ co-payments are a percentage of the Medicare payment, so higher Medicare rates lead to higher out-of-pocket costs. To circumvent this issue, some hospitals buy out independent physician practices and rebrand 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 problem, policymakers have implemented “site neutral” policies that pay the same for a service regardless of where it is performed. Congress required Medicare to pay future off-campus hospital outpatient departments at a rate equivalent to those of physicians’ offices in 2015, and a 2018 Trump-administration regulation required similar payment rates for clinic visits in off-campus departments that were exempted from that law. Both Presidents Obama and Trump recommended extending site-neutral payments to off-campus hospitals and post-acute-care facilities, which could save hundreds of billions of dollars in federal spending, seniors’ premiums, and out-of-pocket costs without necessitating any changes to seniors’ Medicare benefits.
While site neutrality is a straightforward policy solution that has bipartisan support, some politicians may be hesitant to make any changes to a program that is popular among seniors. However, with deficits projected to exceed $20 trillion over the next ten years, and Medicare spending expected to double from roughly $830 billion to $1.67 trillion between 2023 and 2033, policy-makers must make hard choices to reform Medicare. Implementing site neutrality policies would be a great place to start, as cracking down on Medicare overpayments through site neutrality could help set the stage for bigger reforms down the line. Despite pressure from big hospital systems and other provider groups that financially benefit, lawmakers must prioritize the long-term health of the nation’s fiscal health.
