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MedPAC to Explore if Hospital Consolidation Impacts Medicare Costs

The US House Energy and Commerce Committee tasked MedPAC with investigating if hospital consolidation increases rates of Medicare spending.

Congress has commissioned MedPAC to investigate correlations between hospital consolidation and healthcare prices.

Source: Thinkstock

By Thomas Beaton

- The House Committee on Energy and Commerce has asked the Medicare Payment Advisory Commission (MedPAC) to investigate whether or not hospital consolidation increases Medicare spending.

In a letter to MedPAC, Representatives Greg Walden (R-OR), Michael C. Burgess (R-TX), and Gregg Harper (R-MS) noted that hospital consolidation rates are on the rise.

The Government Accountability Office (GAO) estimates that the number of vertically integrated hospitals grew by 21 percent between 2007 and 2012.

At the same time, Medicare spent close to $200 billion on hospital care in 2017, and that number is expected to rise. The confluence of these trends prompted the lawmakers to request that MedPAC investigate any causation between the two.

“Consolidation in the hospital industry appears to be a larger trend of consolidation in the healthcare market more generally,” the Committee said. “Hospitals play a significant role in the healthcare market and are thus likely to have a role in influencing healthcare costs, particularly as it relates to the Medicare program.

The Committee asked MedPAC review existing industry data about the potential impact of consolidation on Medicare costs. Conflicting studies and assessments have made it difficult for Congress to develop a clear perspective on the issue.

A PwC report from 2016 estimated that consolidated hospital systems can reduce care costs by 15 to 30 percent, while other reports suggested that hospital consolidation increases care costs by 20 to 40 percent.

Earlier Energy and Commerce Committee hearings on hospital consolidation also led to contrary information about the potential effects of consolidation on healthcare costs and quality, the lawmakers said.

In a 2014 hearing, one witness argued that hospital consolidation allows a health system to improve efficiency and create economies of scale to generate cost savings. Conversely, witnesses in a 2018 hearing asserted that hospital consolidation was linked to lower care quality, significant price inflation, and no gains in efficiency.

Congress also tasked MedPAC with investigating federal policies that may incentivize hospital consolidation and inadvertently drive up hospital costs.

For example, the Bipartisan Budget Act of 2015 made changes to Medicare reimbursement policies by providing site-neutral payments for newly-acquired, off-campus hospital outpatient departments (HOPDs).

A GAO report found that Medicare paid between $58 to $86 more for evaluation and management (E&M) visits in newly acquired HOPDs than in similar facilities, even though beneficiaries at all sites had similar health statuses. The higher payments in the HOPDs are just one example of how Medicare payment policies could create an economic incentive for hospitals to consolidate.

In addition, the 340B Drug Pricing Program may lead to rising hospital consolidation and increasing pharmaceutical prices for beneficiaries, the lawmakers said.

In 2015, MedPAC told Congress that physicians participating in the 340B Program were likely to sell their practices to hospital systems in order to receive 340B's discounted drug rates. Hospitals also increased their acquisitions of physician practices and established the practices as 340B “child sites.” Hospitals were allowed to charge patients additional facility fees for services performed within designated child sites.

Congressional lawmakers concluded that MedPAC can help industry stakeholders learn more about the effects of hospital consolidation to address rising healthcare costs for beneficiaries.

“The Committee believes that MedPAC should continue to review the trends of hospital mergers to help improve our understanding of the impact of consolidation in the hospital industry,” the lawmakers said. “The Committee wishes to determine the impact consolidation has on patients, and if patients end up paying higher prices due to consolidation for no identifiable benefit to the beneficiary.”

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