MEDPAC: Hospitals Should Get 1% Payment Update in 2013

"Although the average hospital Medicare margin is negative, we find that Medicare payments more than covered the fully allocated costs of the median efficient hospital, which operated with a (positive) 4% Medicare margin in 2010," the report said.

The commission recommends that Congress increase payment rates for inpatient and outpatient care under the prospective payment system in 2013 by 1%. Additionally, for inpatient services, the Department of Health and Human Services should, beginning in 2013, use the difference between the increase under current law and the Commission's recommended update to gradually recover past overpayments.

Outpatient care in a hospital versus a physician's office
Fifteen-minute hospital outpatient department E&M visits should receive the same pay as E&M visits in a physician's office practice setting by reducing the amount paid to hospitals, with reductions phased in over three years. Disproportionate share hospitals would be limited to a 2% reduction.

"In 2011, Medicare paid 80% more for a 15-minute office visit in an OPD (hospital outpatient department) than in a freestanding physician office," the report said.

"This payment difference creates a financial incentive for hospitals to purchase freestanding physician offices and convert them to OPDs without changing their location or patient mix. Indeed, E&M clinic visits provided in OPDs increased 6.7% in 2010, potentially increasing Medicare program and beneficiary expenditures without any change in patient care."