For millions of Americans, going to a hospital provides a shocking reminder that high healthcare costs remain a constant strain on their family budget. According to a recent Pew Research poll, 67 percent of the country views healthcare affordability as a “very big problem.”
Last week, the Centers for Medicare & Medicaid Services proposed a new rule for site neutrality on drug administration, a positive step toward lowering healthcare costs for Medicare patients and an indication that changing the way hospitals conduct business is at the forefront of the current administration's agenda.
But now is the time for Congress and the Administration to be bold and go further in alleviating financial stress on an American public still reeling from years of record inflation. A comprehensive, site-neutral payment policy — backed by bipartisan support in Congress — can be the catalyst for real reform and savings.
At its core, site-neutral payment simply means that Medicare pays the same amount for the same service, regardless of whether it takes place in a hospital outpatient department or a doctor’s office. This sounds obvious. Why should a basic medical service cost hundreds — or sometimes thousands — more simply because it's performed under a hospital’s roof instead of an independent clinic? Unfortunately, under the current system, Medicare reimburses hospitals at significantly higher rates for routine services like lab tests, imaging, and check-ups. These price differences have nothing to do with quality or complexity; they are the product of a billing system riddled with distortions and loopholes.
This unequal payment system is fueling a dangerous trend of consolidation in the healthcare industry. Hospitals have strong financial incentives to acquire independent physician practices, convert them into "hospital outpatient departments," and charge higher facility fees for the same services. A new National Bureau of Economic Research study found the share of physician practices acquired by hospitals rose by 72 percent between 2008 and 2016.
The study also found physician prices rose by an average of 15 percent within two years of a hospital acquiring the practice. These acquisitions reduce competition and inflate costs for taxpayers, employers, and most importantly, patients. We are witnessing a rigged system where big hospital systems exploit government payment rules to squash competition, corner markets, and pad their bottom lines.
There are also hard fiscal realities at play. Medicare is projected to become insolvent within the next decade, and we must find smart ways to control spending without cutting benefits or raising taxes. Site-neutral payment reform is one such solution. The Congressional Budget Office has estimated that eliminating certain payment disparities could save billions over ten years. These are real, structural savings — achieved not by denying care, but by refusing to pay more for the same thing. That’s good governance, and it's a win for patients and taxpayers alike.
Some opponents, particularly the well-funded hospital lobby, claim that site-neutral payments would harm rural hospitals. But that argument is misleading. The reforms under consideration target only routine services that can be safely and effectively delivered in non-hospital settings. Emergency care and complex procedures that require hospital infrastructure are not affected. While these sorts of scare tactics are to be expected, we can no longer allow massive hospital systems in urban and suburban areas to continue hiding behind the rural label as a shield for profiteering.
The current administration and Congress have the opportunity to lead on a healthcare issue that reduces spending, restores competition, and protects patients from surprise bills. Embracing site-neutral payment reform is not only consistent with the promises elected officials have made to the American people — it is essential to preserving the integrity and sustainability of Medicare. Both should seize this moment to champion a policy that puts patients before profit and taxpayers before entrenched interests.
Connie Partoyan is the executive director of Better Solutions for Healthcare.