Citing echocardiograms and nuclear cardiology as examples of distorted incentives, the Medicare Payment Advisory Commission (MedPac) recommends aligning outpatient prospective payment rates to physician office rates. The change could trim $264 off hospital payments for certain echo procedures.

In a report to Congress published in March, MedPac proposed ways to reduce Medicare costs without affecting the quality of care. As part of its Medicare Payment Policy report, MedPac examined variations in Medicare payment across settings, with a focus on hospital outpatient departments and freestanding physician offices.

Medicare pays $453 for a level II echocardiogram without contrast in an outpatient facility, according to MedPac. The same test nets $189 in a freestanding physician office. Given the more than double payment in outpatient settings, hospitals have had an incentive to buy freestanding offices and convert them to hospital outpatient departments.

In an analysis of claims from 2010 through 2012, MedPac observed a shift in procedures offered in the two settings for echocardiograms and ambulatory nuclear cardiology services. Volume growth for echocardiograms without contrast decreased by 10 percent at freestanding offices and increased by 33 percent in hospital outpatient departments. In nuclear cardiology, freestanding office volume dropped by 17 percent and hospital outpatient department volume grew by 24 percent.

Medicare typically provides an additional payment to a hospital for a service at hospital outpatient departments through the outpatient prospective payment system. Looking at 2014 payments, MedPac calculated that physician payment in a freestanding office setting totaled $228. In a hospital outpatient department, the physician fee is less—$65—but tacking on a hospital payment of $427 to the service brought the total payment to $492.

MedPac recommended trimming the hospital payment to $163 to make payments equal between settings. It added that the adjustment would also lower beneficiary costs. For echo, that would produce a reduction of almost $50 in the hospital outpatient setting.    

While the analysis highlighted echo and nuclear cardiology as examples, MedPac suggested the realignment could be imposed on any service that met five criteria:

• Services frequently performed in physican offices;
• Services where the payment rate includes a similar set of services;
• Services that are unlikely to have costs directly associated with operating an emergency department;
• Patient severity is no greater in the hospital outpatient departments than in freestanding offices; and
• Services that do not have a global surgical code.

Changing payment rates could reduce Medicare spending and beneficiary cost sharing by $1.1 billion in one year, MedPac proposed. “This approach will reduce Medicare program spending, reduce beneficiary cost sharing, and create an incentive to improve efficiency by caring for patients in the most efficient site for their condition,” the authors wrote.