JUNE 1, 2021

The Beginning of the End for Provider-based Billing

The past two decades in healthcare have been marked by increasing numbers of independent physician practice acquisitions by hospitals and health systems. Upon acquisition, many of these hospitals and health systems enacted changes that would allow the newly acquired clinics to be billed as hospital outpatient facilities, a billing practice that’s been allowed since 2000. Newly acquired practices usually required some relatively basic modifications prior to switching to provider-based billing including, but not limited to, changing signage to indicate ownership by the licensed hospital, notifying patients of the change in billing status and including the clinics on the hospital’s year end cost reporting. Making these relatively straightforward changes has helped many hospitals earn considerably enhanced reimbursements from government payers. Critics of this billing practice will point out that very little changes with respect to the services provided under the new hospital ownership that would justify increased payments from CMS. Additionally, it can be argued that the existence of provider-based billing is anti-competitive, as it puts private practices at a distinct disadvantage with respect to revenue generation. With that said, clinics that bill facility fees are at a disadvantage with respect to patient satisfaction due to the higher costs passed on to them. Proponents of the billing practice feel as though the fees are justified because of the more comprehensive service options typically offered by provider-based clinics. And with reimbursements so low, that the payment boost is necessary to make caring for the Medicare/Medicaid populations financially feasible. Powerful groups like the AHA continue to fight on behalf of its Medicare-billing members, temporarily delaying the inevitable. Provider-based billing may not go away quietly, but its days are numbered.

Over the past few years, provider-based billing has come under intense scrutiny as it’s become clear just how much more these outpatient services are costing both payers and patients. The CMS estimated that it had been paying $75 to $85 more per visit for provider-based clinics than it was for visits in traditional physician offices. Furthermore, it was estimated that the patient has had to pay about 20% of that increase. The CMS estimated that Medicare would save $650 million and patients $150 million in copays if the billing practice were done away with. And, so, in 2016, the CMS took the first baby step towards closing the provider-based clinic billing loophole when a site-neutrality rule was passed whereby hospital-based off-campus facilities were paid less than their campus-based hospital outpatient counterparts if they started billing Medicare after November of 2015 (those who had started the practice prior to November of 2015 were grandfathered in and considered ‘excepted’ from this reduction in reimbursement). Since then, the CMS has gotten even more aggressive in curtailing this billing practice and has reduced payments even to those excepted off-campus departments. While the implementation of this rule was initially stymied by the AHA through court battles, the appeals court have thus far upheld the ruling and CMS appears to be moving ahead with recouping revenues from as far back as 2019 from the formerly excepted provider-based clinics, a move that will likely hit affected hospitals in July of 2021.

At the same time that provider-based billing for office visits has been scrutinized, several other Medicare billing trends have emerged. Physician-hospital consolidation has actually led to increased Medicare spending on lab and imaging, with a recent study estimating that this vertical integration has costed Medicare over $73 million between 2013 and 2016. Upon acquisition, physician practices were more likely to shift their lab and imaging orders to hospital-based facilities, which are more costly than their non-hospital counterparts. We’ve also witnessed both commercial and government payers shifting to quality and outcomes-based reimbursements, most notably in the way of the Quality Payment Program (QPP). If the hospital argument that the availability of additional services warrants the higher reimbursements holds, then we would expect to see outcomes that justify the higher reimbursements. Unfortunately, the anticipated quality improvements that accompany vertical integration and the increased availability of health services has not transpired, or at least not in a decisive manner. And, finally, consumers are now privy to a level of pricing detail that had not previously been available with the new Hospital Price Transparency Final Rule. There have also been a number of articles in mainstream publications highlighting stories of Medicare patients experiencing astronomical increases in bills once their formerly independent physician practice joined a health system. While healthcare billing remains murky from the patient perspective, patients are slowly getting wiser to health system billing practices and, for the most part, they’re not liking what they’re finding.

As the CMS starts to reprocess 2019 and 2020 off-campus visit claims to recoup excess reimbursements, hospitals and health systems will feel the pinch and will once again need to reposition themselves to maintain financial viability. Referral patterns of affiliated providers may further shift to hospital-based options, continuing the aforementioned vertical integration trend. Further health system consolidation is another likely outcome, as hospitals address their shrinking margins by merging or being acquired by other systems. Medicare reimbursements will become even more of a challenge for hospitals to manage as millions more baby boomers become eligible for Medicare. The CMS appears to be on a path of seeking out and eliminating reimbursement disparities for virtually identical procedures and so other hospital-based reimbursement premiums are potentially also on the chopping block.

The bottom line? Provider-based billing likely won’t last much longer, but many hospitals are dependent on the enhanced reimbursements due to their high proportion of Medicare patients.

The vertical integration that’s occurred over the past decade or two has yet to yield the cost efficiencies and quality improvements promised, and some of the CMS programs that have historically, but unintentionally, incentivized the acquisition of medical practices are being modified or outright eliminated. Quality and cost effectiveness reign supreme now, but current quality-based programs aren’t generous enough to cover the loss of provider-based visit revenue for many health systems. One thing is for sure, with the Medicare subscriber population growing by the day, both the CMS and health care providers are under the gun to find a financially viable way to deliver high quality care to the nation’s aging population.