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Medicare and its Members Paid Significantly More to Provider-Based Facilities

Analysis  |  By Jay Asser  
   June 21, 2022

The Office of Inspector General (OIG) uncovered that the program and beneficiaries could have saved $1.6 billion combined had they been charged the same payment rate as freestanding facilities.

Medicare and its beneficiaries paid considerably more at provider-based facilities than they would have for the same services at freestanding facilities, according to the OIG.

The OIG's audit examined $3.95 billion paid for evaluation and management (E&M) services at provider-based facilities from 2010 to 2017 in eight states: California, Colorado, Florida, Louisiana, Michigan, Missouri New York, and Texas. Based on outpatient and Physician Fee Schedule (PFS) claims for E&M services performed at provider-based facilities, researchers compared the data to what would have been paid at freestanding facilities.

The cost savings potential was substantial, as Medicare could have saved $1.3 billion, while its members could have saved $334 million, for a combined total of over $1.6 billion.

Instead of Medicare and its beneficiaries paying $1.8 billion and $460 million, respectively, for the freestanding PFS non-facility rate, their actual payments were $3.1 billion and $794 million.

Additionally, beneficiaries would have only had to make one coinsurance payment rather than two and the cost-sharing would have been lower based on the freestanding facility rate.

CMS attempted to equalize payments for E&M services between provider-based facilities and freestanding facilities in the CY 2018 OPPS final rule and CY 2019 PFS final rule, which paid both types of facilities at 40% of what they would have been paid under the OPPS. If the 40% adjuster had been in effect during the period of OIG's audit, the potential cost savings to Medicare and its members would have been a combined $1.4 billion.

OIG undertook the audit because three Medicare Payment Advisory Commission reports to Congress and a previous OIG report found that hospitals were increasingly buying physician practices and operating them as provider-based facilities to receive higher payment rates.

After learning of its findings, OIG "recommended that CMS pursue legislative or regulatory changes to lower costs for both the Medicare program and beneficiaries, by equalizing payments as appropriate between provider-based facilities and freestanding facilities for E&M services."

CMS responded by not directly agreeing or disagreeing with OIG's recommendation, while referring to regulatory action it had taken and adding that further changes "may require legislative action."

Jay Asser is an associate editor for HealthLeaders.


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