Why Hospitals Charge More for Tests than Your Doctor

Doctor treating a female patient.
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You should pay the same amount for health care services regardless of where they are performed. Surprisingly, Medicare has not always held to that basic principle. The Centers for Medicare and Medicaid (CMS) has been paying hospital systems more for the same tests and procedures that can be done in your doctor's office. That leaves both you and Medicare paying more than you should.

How Hospitals Get Paid

People tend to think of hospitals as places where they can receive emergency care, have surgery, or be admitted in times of serious illness. For the most part, these are inpatient services. Many hospitals also include an extensive network of offices and departments that also offer outpatient care and services. Working under the hospital umbrella, the hope is to keep you healthy enough so that you do not need inpatient care. 

When it comes to outpatient services, Medicare pays hospitals according to one of two payment policies. Procedures performed at hospital outpatient departments are paid on the Hospital Outpatient Prospective Payment System (OPPS) while freestanding clinics are paid on the Medicare Physician Fee Schedule. The Physician Fee Schedule is also how your doctor gets paid by Medicare.

To put it simply, the hospital gets paid more by OPPS than they do by the Physician Fee Schedule. Because of the higher rates, you are left to pay more out of pocket.

What Are Site Neutral Payments?

When you need an evaluation, your doctor will order tests. If your doctor's practice is affiliated with a hospital, you may be referred to the hospital's outpatient department to get them done. In reality, this could cost you more.

Your doctor's office may be able to offer the same tests that are also offered at a hospital outpatient department. For example, many cardiologists can perform echocardiograms and stress tests in their office. Some orthopedic surgeons may have x-rays on site to look for fractures. Ambulatory surgery centers may compete with hospitals for certain low-risk procedures.

As it currently stands, for the same clinical situations, Medicare pays more for services done in outpatient hospital departments than these other sites. This is the case even when hospital care is not necessary. Site-neutral payments would require the same rate be charged for a service regardless of where it is performed.

How Site Neutral Payments Affect Medicare

According to the Medicare Payment Advisory Commission (MedPAC), Medicare paid hospital outpatient departments nearly twice the amount for echocardiograms in 2013. In that same year, ambulatory surgery centers were paid roughly 78 percent less for the same low-risk procedures performed in a hospital setting.

In 2014, the Office of the Inspector General estimated that changing surgery rates to those paid to ambulatory surgery centers could save Medicare as much as $15 billion over five years. Site-neutral payments could decrease Medicare payments to hospitals by $1.44 billion each year.

In 2015, MedPAC proposed that payments for the same procedures in the same outpatient clinical scenarios be paid by Medicare at the same rates. These site-neutral payments would save money for both you and Medicare.

CMS decided to take action. In 2017, they enacted rules that removed off-campus hospital outpatient departments from OPPS payments if they began billing on or after November 2, 2015. They paid them at Physician Fee Schedule rates but allowed them to add a billing modifier or "relativity adjuster". Essentially, these departments got paid more than the Physician Fee Schedule but at only 50 percent of the OPPS rate. In 2018, they are paid only 25 percent of the OPPS rate. CMS estimates that this will save Medicare $25 million in 2018 alone.

How Site Neutral Payments Affect Hospitals

The American Hospital Association (AHA) has argued against site-neutral payments and for obvious reason. They want to make a profit. They also argue that outpatient hospital departments see a disproportionate number of people on Medicaid, people who are dual-eligible (both Medicare and Medicaid), and people who are uninsured. With low-income patients less able to pay their share of the bill, a change to site-neutral payments could lead to lower overall reimbursement rates for hospitals.

Medicare patients who use outpatient hospital departments also tend to have more chronic medical conditions. The increased risk for complications in these patients needs to be taken into account. The AHA notes that due to these higher-risk patients, outpatient hospital departments are more likely to have a nurse in addition to a physician involved in different testing scenarios. This adds to the overhead costs for these studies.

Loss of revenue could financially strain hospitals to make changes, possibly affect staffing and other accessibility issues. Hospitals stand to lose billions if site-neutral payments come into play across the board. For now, site-neutral payments are in evolution. CMS has reduced rates to some but not all hospital outpatient departments, but the payments are not yet reduced to the level of the Physician Fee Schedule.  

A Word from Verywell

The saying "you get what you pay for" does not always hold true. Until site-neutral payments are enacted, you will be paying more for the same services you could get in your doctor's office whenever you receive care at an outpatient hospital department. CMS is looking to change how much hospital systems can charge, but changes in policy could potentially affect your access to those services. When possible, be sure to shop around for the best rates.

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Article Sources

  • Centers for Medicare and Medicaid Services. CMS Finalizes Hospital Outpatient Prospective Payment Changes for 2017. https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-11-01-3.html. Published November 2016.
  • Federal Register. Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs. https://www.federalregister.gov/documents/2017/11/13/2017-23932/medicare-program-hospital-outpatient-prospective-payment-and-ambulatory-surgical-center-payment. Updated December 2017.