The House Budget Committee met Thursday to discuss the impact of healthcare mergers and acquisitions on cost, quality and access and arrived at a bipartisan consensus: Something needs to be done to halt the rampant pace of consolidation before it inflates medical costs further.
What, exactly, remains unclear, though lawmakers and witnesses during the hearing expressed support for standardizing Medicare payments between hospital-owned outpatient sites and independent physician offices for the same services.
Such site-neutral policies are “very bipartisan,” testified Sophia Tripoli, the senior director of health policy at patient advocacy group Families USA. “It is a no brainer.”
Congress has been increasingly interested in tamping down on healthcare consolidation amid a mountain of evidence it increases costs without a corresponding increase in care quality, harming Americans’ ability to access and afford medical care. After a merger, hospitals can jack up their prices anywhere from 3% to 65%, according to a Rand review from 2022.
“We just can’t afford to have this continued increase in prices,” said Rep. Ron Estes, R-Kan., during the hearing.
Though vertical consolidation among health insurers and private equity acquisitions also came under fire, the Budget committee focused more on provider consolidation, when hospitals and health systems snap up physician offices and other providers.
That activity is occurring “not because physicians want to give up their practice and become employed but because they have no choice,” testified Adam Bruggeman, an orthopedic surgeon in Texas.
If the U.S. continues on its current course, “the idea of the independent physician will continue to fade from our healthcare system,” Bruggeman said. “The consequences of inaction are simply too high.”
Growing site-neutral support
A number of forces are leading physicians to sell their practices to hospitals and health systems, including a desire for more market power to negotiate higher reimbursement from insurers, inability to deal with administrative red tape and reimbursement from Medicare not keeping pace with inflation, witnesses said.
As a result, the share of community hospitals affiliated with a health system jumped from 53% in 2005 to 68% in 2022, according to the KFF. Meanwhile, the share of doctors working for a hospital increased from 29% in 2012 to 41% in 2022, according to the American Medical Assocation.
Consolidation will likely continue at the same pace without intervention from Washington, testified Chapin White, the director of health policy analysis at the Congressional Budget Office.
One intervention that’s been gaining steam in Congress is enacting site-neutral payments, or equalizing payment for the same service regarded of where it’s administered.
Currently, under Medicare, hospital outpatient departments receive higher reimbursement than independent physician offices and ambulatory surgery centers for providing the same care. Hospital-owned clinics can also charge additional facility fees, resulting in higher co-pays for patients.
As a result, hospitals are incentivized to acquire physician offices, change their designation and bring in more revenue for providing the same care as those offices were before.
“I don’t see any business person in America who would run their business with that kind of incentive structure where you’re paying one entity more than you are another entity for the same procedure, same outcome and in many instances the same healthcare professionals,” said Rep. Jodey Arrington, R-Texas, the chairman of the House Budget Committee.
Site neutral reforms have broad support among healthcare stakeholders, including doctors, but are maligned by hospitals because they would lower Medicare revenue.
Hospitals argue that site-neutral policies don’t take into account differences between hospital outpatient departments and other sites of care, including that their outpatient sites generally see sicker patients and have higher overhead costs.
However, “for relatively routine things that can be done in a variety of settings, things like drug administration, that makes a lot less sense,” testified Benedic Ippolito, an economic policy senior fellow at right-leaning think tank the American Enterprise Institute.
Meanwhile, the reimbursement differential gives hospitals a “major incentive” to acquire physician offices, he said.
"I don’t see any business person in America who would run their business with that kind of incentive structure."
Rep. Jodey Arrington, R-Texas
Chairman of the House Budget Committee
Lawmakers on the Hill have recently reinvigorated efforts to enact site-neutral policies. In December, the House passed the Lower Costs, More Transparency Act, despite fierce hospital lobbying against it. The bill would equalize payments for drugs in Medicare regardless if they’re administered in an hospital outpatient departments or doctor’s offices.
The bill has yet to be taken up by the Senate. But passing it would be an important first step to tamp down on consolidation, said Families USA’s Tripoli.
The bill’s site-neutral policies alone would save roughly $3 billion. However, enacting site neutral payments across all inpatient and outpatient settings could save $150 billion over ten years, according to projections cited by lawmakers.
Stabilizing Medicare pay, red tape
Witnesses also suggested a number of other reforms that could discourage consolidation, including paring back administration burden on physicians.
Rising red tape, including reporting requirements in Medicare programs, make it difficult for a standalone office to operate, Bruggeman, the surgeon, said. As a result, many doctors sell to a larger entity so it can handle administration for them.
Bruggeman said more than one-third of his practices’ staff, time and money is spent on nonclinical work like responding to administrative requirements.
Congress could also move to stabilize physician payments by tying annual Medicare payment updates to inflation, according to witnesses. Recently, the Senate Finance Committee said it was interested in such a policy, which is supported by physician groups and nonpartisan Medicare advisors.
In addition, lawmakers could consider reforms to the 340B drug discount program, Ippolito said. Currently, physician practices may want to join hospitals so they can buy drugs at the discounted price hospitals receive, the economist said.
And, Congress could repeal the moratorium on physician-owned hospitals, Bruggeman suggested. Studies suggest physician-owned hospitals, which have been banned for over a decade over concerns doctors would refer care exclusively to their own facilities, could save Medicare money.
Antitrust and PBMs
Despite kicking around a number of legislative solutions, the CBO’s White noted healthcare consolidation is a difficult problem for Congress to tackle.
Years of regulatory inaction coupled with strong incentives for the private sector to consolidate has resulted in highly concentrated healthcare markets. The vast majority — 90% — of metropolitan areas had highly concentrated hospital markets in 2016, according to one study.
As a result, antitrust regulators need to be more aggressive to stop anticompetitive deals moving forward, White said.
Ippolito agreed, noting that regulators need to be more aware of concerning trends, like entities consolidating large market share through a series of smaller transactions. That’s a common strategy of private equity firms in healthcare — a group that’s found itself frequently in the crosshairs of the Biden administration’s stricter antitrust regime.
Members of the Budget committee also said they were also concerned about health insurers integrating with pharmacy benefit managers, and expressed interest in injecting more transparency into PBM business practices.
PBMs, which sit in between health plans and drug companies in the pharmaceutical supply chain, have faced rising federal scrutiny over their role in rising drug prices, and are being investigated by several congressional committees and the Federal Trade Commission.
“I’m not opposed to anybody making money ... but [PBM savings are] not being passed on to the patient,” said Rep. Buddy Carter, R-Ga.
Forcing more transparency on PBMs would help by making it easier for employers and plans to track where their money is going, driving down the fees PBMs are able to retain and helping clients identify bad actors, White said.
Along with its site-neutral provisions, the Lower Costs, More Transparency Act would also require PBMs to disclose rebates, fees or other types of compensation to brokers.
Injecting more transparency could help by encouraging competition, but any PBM reform from Washington is unlikely to significantly lower drug prices without action to curb the high list prices of drugs themselves, according to the Brookings Institution.
