A Medicare advisory panel recommended changes to Congress that included initiatives to reduce payment differences between hospital outpatient and physician office payment rates. One option targeted cardiac imaging services for a projected annual savings of $500 million.

In 2012, the Medicare Payment Advisory Commission (MedPAC) made a case for reducing evaluation and management (E&M) office visits in hospital outpatient departments (OPDs) to equalize payments across settings. MedPAC used its June “Report to Congress: Medicare and the Health Care Delivery System” to extend beyond E&M visits to highlight other services with discrepancies between payment rates in OPDs and other settings.

“Payment variations across settings urgently need to be addressed because many services have been migrating from physicians’ offices to the usually higher paid OPD setting, as hospital employment of physicians has grown,” according to MedPAC. “This shift toward OPDs has resulted in higher program spending and beneficiary cost sharing without significant changes in patient care.”

MedPAC highlighted three payment rate differences as examples:

• Level II echocardiogram without contrast, 141 percent higher in OPDs than in physicians’ offices;
• Level III echocardiogram without contrast, 47 percent higher in OPDs than in physicians’ offices; and
• Level II cardiac imaging, 19 percent higher in OPDs than in physicians’ offices.

The report cited a survey by the American College of Cardiology that showed the shift from physician-owned practices to hospital employment; the share of employed cardiologists grew from 11 percent in 2007 to 35 percent in 2012. As a result, the volume of echocardiograms and nuclear cardiology services also changed. The volume of nuclear cardiology services tests at free-standing offices, for instance, fell 12 percent between 2010 and 2011, and the volume of echocardiograms without contrast dropped 6.3 percent. Volumes in OPDs rose 13.6 percent and 17.6 percent, respectively.

The migration has affected costs as well. The authors pointed out that if annual rates of increase continued through 2021, almost all cardiac imaging services would be provided in OPDs, increasing Medicare spending by more than $1 billion a year and beneficiary cost sharing by $290 million a year.   

The authors acknowledged that there may be legitimate reasons for higher costs in OPDs. OPDs may need to maintain standby capacity for emergency care; may treat more medically complex patients; may have higher accreditation requirements; and may package primary services with ancillary services and supplies.

For that reason, they split services into two categories: Group A, where payment rates are equal for both settings because services are appropriate for a free-standing office, rarely are done in an emergency room, patient severity is similar and packaging differences are minimal; and Group B, where differences in payment rates could be narrowed but not eliminated because of differences.

Changing OPD payment rates in both groups would trim $900 million in one year, MedPAC calculated, with an average drop in Medicare revenue and OPD revenue of 0.6 percent and 2.7 percent, respectively.

Taking another approach, they looked at aligning payment rates for cardiac imaging services, focusing on echocardiography and cardiac nuclear tests. In that analysis, Medicare spending and beneficiary cost sharing was reduced by $500 million. Overall Medicare revenue dropped by 0.3 percent and OPD revenue by 1.5 percent.

The report also revisited hospital readmissions, offering refinements to the computation of readmission rates and the penalty. Other chapters focused on redesigning Medicare benefits, bundling post-acute care services, payment for hospice services, improving care for dual-eligible beneficiaries and three reports mandated by Congress.