Sticker shock: How hospital deals are blowing up bills

After his heart attack 11 years ago, Morton Wolf needed frequent echocardiograms to see how his heart was working.

They weren't cheap, but also not cause for consternation. Wolf's wife, Janice, the keeper of the family budget, has a 2010 bill that totaled $950. Medicare and their Part B supplement paid.

But in 2013, the couple saw a charge that horrified them: $3,379 for the same test.

What changed? The cardiology practice Morton Wolf had been using was sold to Lourdes Health System. Lourdes says the actual disparity is smaller, but it still rankles Janice Wolf.

"It's just the idea," she said, her voice rising with indignation. "That's why our premiums keep going up."

Morton Wolf, 75, golfs several times a week now and feels great, but is also aggravated that Medicare pays more just because a hospital bought the business.

"It annoys me that I am one of the few that really cares that Medicare has to pay that kind of money," he said.

The Wolfs have an ally in the Medicare Payment Advisory Commission (Medpac), a federal agency that advises Congress. It also is concerned that the rush by hospitals to buy physician practices in order to shore up market share and improve care coordination is having an unexpected consequence: higher prices.

Because Medicare pays hospitals more for certain tests than it pays physicians, the acquisitions have raised costs for both the government and patients. And because private insurers often follow the health program for seniors, its actions ripple throughout the market.

Medpac has recommended closing or reducing the gap, but so far Congress has taken no action. Medpac says that better aligning the rates for just 66 types of service would save Medicare and beneficiaries $1.1 billion a year.

Echocardiograms are among the services cited in Medpac's report last year to Congress. Medicare pays $453 for a "level II" echocardiogram done at a hospital-owned outpatient facility. Compare that to $189 in a doctor's office.

Michael Hammond, chief financial officer at Lourdes, said the number cited by Medpac was what his hospitals' outpatient facilities were actually paid for an echocardiogram. The higher numbers the Wolfs saw on their bills were "charges" - list prices similar to the sticker price on a car that few customers actually pay.

Hammond did not dispute that the hospital received more than a physician practice would.

As more cardiologists sold their practices to hospitals, the number of echocardiograms performed in physician offices fell 10 percent between 2010 and 2012. The number done at hospital outpatient offices increased 33 percent.

Because nothing may physically change when a practice is sold, patients may have no reason to check for new prices until they see the bill.

Making the payment system more "site neutral," Medpac said, would save money and "create an incentive to improve efficiency by caring for patients in the most efficient site for their condition."

Hospitals have traditionally received higher payments because tougher regulations, requirements to care for the poor, and complex treatments lead to higher overall costs.

"These sites are not neutral," said Erik Rasmussen, vice president of legislative affairs for the American Hospital Association. "Hospitals have greater responsibilities and care requirements."

Even Medpac, he said, acknowledges that hospitals are losing money on their outpatient facilities. They are buying physician practices not to make money, he said, but to better coordinate care.

Hammond, at Lourdes, said Medpac's recommendations would cost his health system several million dollars. While individual procedures may cost more when the hospital owns the facility, he said, buying cardiology practices and working with cardiologists to manage heart care has led to better coordinated, more efficient treatment before, during, and after heart attacks.

"What I look at," he said, is a "well-functioning, high-performing organization that can do a lot for a large population."

Robert Lux, chief financial officer of Temple University Health System, said the "site-neutral" issue was worth about $8 million a year to Temple. Most of the outpatient offices involved are for oncologists who work at Fox Chase Cancer Center. Many of their patients require complex treatments that could not be given in typical community oncology practices, he said.

The health system employs about 800 doctors. In most cases, including cardiology practices, it has chosen not to designate their offices as outpatient facilities, he said. That means they are reimbursed by Medicare at the lower, physician's-office rate.

Several other local hospitals did not respond to queries about their purchases of physician practices.

Nationally, a coalition of organizations, including the Philadelphia-based American College of Physicians, the Blue Cross and Blue Shield Association, and America's Health Insurance Plans (AHIP), formed the Alliance for Site-Neutral Payment Reform. In a letter to Congress this year, the group also called for a change in reimbursement rules.

The group used Medicare's colonoscopy payments as an example. The procedure, used to detect colon cancer, costs $625 in a doctor's office, but $1,383 in a hospital outpatient facility.

Quoting a report from IMS Institute, the alliance said cancer-drug administration costs are 189 percent higher for hospital outpatient offices than physician offices for privately insured patients, and twice as high for those with Medicare.

AHIP did not return several calls.

Neil Kirschner, senior associate for health policy and regulatory affairs at the American College of Physicians, said a difference in cost was justified only "for those services that require the resources unique to the hospital setting."

Medpac did not include chemotherapy in its list of procedures where hospital payments should be reduced. It did include endoscopy, ultrasound, MRI, bone-density tests, nerve injections, and pulmonary tests.

How much these payment differences affect the private market is unclear. Ruth Stoolman, a spokeswoman for Independence Blue Cross, the region's largest private insurer, said IBC's contracts were structured so that insurance payments stayed the same when a hospital bought a physician practice - until the contract expires.

Walt Cherniak, a spokesman for Aetna, another big local player, said Aetna was concerned about the price differential, but believed tools that allowed subscribers to see price differences - and pick cheaper providers - would change the market.

Alan Zuckerman, a health-care consultant who runs Health Strategies & Solutions, said Philadelphia hospitals feared losing market share if they didn't purchase doctors' practices.

Payment-rate differences are just one reason charges might rise after a practice is purchased, he said. The other is that hospitals can negotiate higher prices with insurers because they have more clout than do physician practices.

"That has driven a lot of practice acquisition [of] doctors who wanted to sustain their economic livelihood," he said.

The acquisitions may have slowed a little, but haven't stopped. "I don't think it's over," he said, "and I don't think it's a trickle."

Mark Victor, chief executive officer of Cardiology Consultants of Philadelphia, a private practice with 95 cardiologists and 31 offices, said higher prices for hospital-based services were "well intentioned" but had "unintended consequences."

He expects that as the health-care system evolves toward maintaining health and reducing hospitalizations, the differences in hospital and physician payments will diminish.

In addition, high-deductible health plans have made patients more price sensitive. "That is what's beautiful about an open market," he said.

Mike West, CEO of the Rothman Institute, a big, independent orthopedic practice, agreed that market changes are addressing the disparities. Rothman has begun accepting "bundled" payments - a lump sum for everything between preoperative care and 90 days after surgery. In a contract like that, there is no price for individual tests.

The practice now accepts bundled payments from private insurers and is preparing to participate in a similar program with the Centers for Medicare and Medicaid Services, which administers Medicare.

Said West: "We think that that's the wave of the future."

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@StaceyABurling