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Medical costs are going up because…

Wonder why that office visit/imaging study/minor surgery/diagnostic test costs twice what it did last year?

Partly/mostly because the physician practice was acquired by a health system or big hospital…which – under current Federal law – allows the new owner to upcharge for “facility fees.”

VERY briefly, way back in 1997 Congress passed the Balanced Budget Act, a giant bill that, among other things, allowed facilities to tack on a facility charge for services delivered in its facilities.

That oversight is a key reason health systems have been snapping up provider practices as fast as they can, paying gazillions for primary care, specialty care, imaging, PT, you name it. (another key reason is health systems want to own as much of the care delivery and referral process – and fees – as possible)

This from Health Services Research:

Medicare reimbursement for physician services would have been $114 000 higher per physician per year if a physician were integrated [part of a health system] compared to being non‐integrated.

The differential varied greatly by type of service…

The solution seems pretty simple…to quote Health Affairs,

Pay for common ambulatory services under the rates, codes and policies in the physician fee schedule regardless of location

There’s an effort underway to at least partially remedy this by moving to a site-neutral reimbursement…but as it will take Congressional action that is a heavy lift indeed…especially given the current House of Representatives.

What does this mean for you?

Two things…

  • Think through potential unintended consequences BEFORE its too late
  • Rethink network contracting strategies…lock in pricing with office-based practices.

2 thoughts on “Medical costs are going up because…”

  1. Seems to me that Health Care will be classified as Low, Medium, High-Class Treatment. I have paid for medical insurance all my adult life and always pick the best coverage plan, but I have deductibles now, I have less coverage now, and now I pay higher premiums but still get the same medical care. Where is this heading to, I wonder?

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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