Health Care

When Hospitals Buy Clinics, Prices Go Up


For the past four years, Pennsylvania insurance company Highmark has watched its bills for cancer care skyrocket. The increase wasn’t because of new drugs being prescribed or a spike in diagnoses. Instead, the culprit was a change that had nothing to do with care: Previously independent oncology clinics and private practices have been acquired by big hospital systems that charge higher rates, sometimes three times as much, for chemotherapy drugs. “The site of care and the type of service provided does not change at all,” says Tom Fitzpatrick, Highmark’s vice president of contracting. “The only significant difference that we primarily see is the [patient] gets a wristband placed on them.”

33%

Increase in hospital outpatient echocardiograms from 2010 to 2012

Hospitals have long charged more than freestanding medical offices for similar services. It’s part of how they pay for higher operating expenses such as running 24-hour emergency rooms. As the Affordable Care Act attempts to steer people away from pricey inpatient admissions, hospitals have begun buying up doctors’ offices in hopes of increasing their revenue and market share. The number of oncology practices owned by hospitals increased by 24 percent from 2011 to 2012. By turning what used to be independent medical offices into so-called hospital outpatient centers, hospitals are creating networks that, critics say, give them the power to set prices and ultimately raise costs for private insurers and government programs such as Medicare.

Watchdogs, including the Medicare Payment Advisory Commission, which advises Congress, are sounding the alarm. In May, MedPAC Executive Director Mark Miller testified before a House panel that these price differences “need immediate attention.” Medicare should align rates “to limit the incentive to shift cases to higher cost settings,” he said.

Cancer drugs, already expensive, often double in price when hospital systems charge for them. A treatment of Herceptin, a breast cancer drug from Genentech, cost private insurers $2,740 when used in an independent clinic and $5,350 in a hospital outpatient setting, according to an analysis of 2012 claims by PricewaterhouseCoopers’ Health Research Institute. The price of Avastin, another Genentech cancer drug, increased from $6,620 to $14,100, the Health Research Institute says.

“The only significant difference that we primarily see is the [patient] gets a wristband placed on them.”—Tom Fitzpatrick

It’s not just cancer care that’s getting more expensive. Hospital outpatient visits for echocardiograms jumped 33 percent from 2010 to 2012, MedPAC found, while visits to independent offices declined. Echocardiograms cost more than double in hospital-owned locations. If Medicare paid the lower office rate for 66 outpatient services even when they’re performed in hospital-owned facilities, the government would save $1 billion a year and lower Medicare patients’ bills by $200 million, Miller said before the House panel. Medicare insured 49 million Americans at a cost of $573 billion in 2012.

Medicare doesn’t track how much care is delivered in “off-campus” hospital outpatient clinics, though it has proposed to begin recording that information next year to determine whether to make changes in Medicare payment policies, says spokesman Aaron Albright. Medicare officials don’t have the authority to level rates across settings without Congress changing the law.

At the moment, Medicare “is going in the reverse direction,” says Ted Okon, executive director of the Community Oncology Alliance, which represents independent cancer clinics. (The group gets funding from drug companies.) The alliance says Medicare’s proposed rates for 2015, released July 3, would pay hospital outpatient centers 84 percent more than physician practices for chemotherapy.

This leaves insurance companies on their own as they fight hospitals over how much to pay for treatment in hospital-owned clinics. It’s been a messy battle in Pittsburgh, where Highmark is in a spat with the University of Pittsburgh Medical Center over prices. Highmark renegotiated some contracts with hospitals to pay lower rates for outpatient chemotherapy. For those it couldn’t change, the insurer cut reimbursements, citing “irrational billing practices.” UPMC says the decision “unilaterally and willfully violated terms of existing contracts” that Highmark itself negotiated. The insurer says reverting to lower payments for roughly 20,000 Pennsylvania chemotherapy patients should save $200 million a year.

Hospitals insist they have to charge more because they provide emergency care for patients even when they can’t pay, a requirement that doesn’t apply to physician practices. “There are additional costs associated with the service being provided in that setting, and that’s why we think additional payment is deserved,” says Tom Nickels, senior vice president of federal relations for the American Hospital Association.

Medical providers and insurers at least owe patients an explanation of why their care costs what it does, Steven Weiss, spokesman for the American Cancer Society’s Cancer Action Network, said in an e-mail. “For years, patients have paid different prices for the same procedure or drug, depending on where they are treated,” he said, and “long-standing trends like this one continue to threaten patient access to lifesaving care.”

The bottom line: Hospitals are buying up doctors’ offices and raising prices for patients and insurance companies.

John_tozzi
Tozzi is a reporter for Bloomberg Businessweek in New York.

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