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    New facility fees rule could slow practice acquisitions

    Hospital systems may no longer be quite as eager to acquire independent medical practices now that the government is scaling back a significant financial incentive for doing so.

    Under a rule that took effect January 1, Medicare is reducing its payments for services and procedures at many hospital-owned outpatient departments, bringing them closer to what it pays physicians in independent practice for the same services and procedures. 

    The higher payments to hospital outpatient departments results from Medicare’s use of a payment schedule that includes a “facility fee” paid to the hospital, in addition to the payment for the physician’s services. Its payments to independent doctors do not include a facility fee.

    The new rule reduces facility fee payments by 50%. However, it applies only to outpatient facilities not on a hospital’s main campus and where providers had not timely billed for their services as of November 2, 2015. Hospital-owned emergency departments are also exempt, regardless of their location.

    “Several things give hospitals the appetite to acquire independent facilities, but one of the most important is the opportunity to charge more for the same service,” says Marni Jameson Carey, executive director of the Association of Independent Doctors. “And it drives up [healthcare] costs astronomically.” 

    From the perspective of medical practices, however, that change could turn out to be a double-edged sword. Practices wishing to stay independent won’t find themselves tempted by as many, or as lucrative, buyout offers. Conversely, practices that want to sell themselves will have to work harder to make themselves attractive to a suitor, and are likely to find fewer of them.

    Reining-in costs

    Concerns over the impact of facility fees, which had been percolating among healthcare policy experts for more than a decade, crystallized in a 2012 Medicare Payment Advisory Commission (MedPAC) report to Congress. The report singled out facility fees for driving up Medicare costs without improving the quality of care.

    It noted, for example, that Medicare was paying about 80% more for a typical 15-minute evaluation and management (E/M) visit in a hospital outpatient department than for the same visit in a freestanding physician office.

    That difference, MedPAC said, gave hospitals an incentive to buy practices and freestanding procedural facilities and convert them to outpatient departments. It also resulted in higher costs to Medicare as well as to the program’s beneficiaries, in the form of higher copays.

    Partly in response to the report, Congress addressed the issue of facility fees in the Bipartisan Budget Act of 2015. A section of that law calls for the Centers for Medicare & Medicaid Services (CMS) to make Medicare payments “site neutral”—that is, the total reimbursement for the service or procedure should be the same, regardless of where it was provided. 

    The rule is the first step in a multi-year process of implementing site payment neutrality, according to Leslie Goldsmith, JD, an attorney with the law firm Baker Donelson based in Baltimore, Maryland.

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