Same Doctor Visit, Double the Cost

NCPA August 30, 2012

Since the passage of President Obama's health care law, hospitals are increasing their size by acquiring private practices. Hospitals say the acquisitions will make health care more efficient. But it is also having another effect: higher prices, says the Wall Street Journal.

• In 2000, 5 percent of specialty physicians that saw patients in hospitals were employed by a hospital.
• Today, that number has risen to 25 percent.
• As a result, physicians get paid for their services at a hospital's rate, which is more than what insurers pay private doctors.
• Furthermore, some services that were once performed at independent facilities may start being billed as outpatient procedures at a hospital, sometimes doubling the cost.
• Additionally, it costs more to operate outpatient clinics which must meet strict regulations and treat patients that don't have insurance, contributing to the increase in rates.

Some examples of the rate increases include:

• A magnetic resonance imaging (MRI) at a private practice ranged from $391 to $742 while at a hospital it cost between $1,591 and $2,226.
• A 15 minute doctor visit cost Medicare $70 at a free-standing clinic, but cost $124 at a hospital.

The impetus for the acquisition of private practices stems from the promise of improved efficiency, care and integrated services.

However, higher costs are imposed on the consumer because of the higher reimbursement. Furthermore, large hospitals have stronger influence in the market and can negotiate higher rate from insurers, whereas private practices don't have that kind of leverage.

As a way to reduce the rates, health plans and hospitals are trying to create new methods of payment that incentivize efficiency. One example is to create incentives for increasing primary care services and decreasing patient readmissions, trying to move away from the fee-for-service system that has created the physician-pay arbitrage.

Source: Anna Wilde Mathews, "Same Doctor Visit, Double the Cost," Wall Street Journal, August 27, 2012.